21

Center of

ses

international

relations

naly

CIR A

CHINA IN THE WORLD ECONOMY

AND ITS ECONOMIC RELATIONS WITH

SLOVENIA: PAST, PRESENT AND THE

FUTURE

MARJAN SVETLIČIČ



CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA:

PAST, PRESENT AND THE FUTURE

Author: Marjan Svetličič

1st edition

Ljubljana, 2020

Book series Analize CMO / CIR Analyses

Editor: Andreja Jaklič

Editorial board: Sabina Kajnč Lange, Matija Rojec, Ana Bojinović Fenko

Published by: Faculty of Social Sciences, University of Ljubljana

For the publisher: Monika Kalin Golob, The Dean of the Faculty of Social Sciences

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0

International License.

Reviewers: Zvone Dragan in dr. Uroš Lipušček

Proofreading: Murray Bales

Design: Luka Kaše

Layout: Zavod Vizar

The book was published with the financial support of the companies Krka, d.d., Novo

mesto and Riko d. o. o., Ljubljana.

Accessible at: http://knjigarna.fdv.si

DOI: 10.51936/9789612359652

Kataložni zapis o publikaciji (CIP) pripravili v Narodni in univerzitetni knjižnici v Ljubljani

COBISS.SI-ID=56580611

ISBN 978-961-235-965-2 (pdf)

MARJAN SVETLIČIČ

CHINA IN THE WORLD ECONOMY

AND ITS ECONOMIC RELATIONS

WITH SLOVENIA:

PAST, PRESENT

AND THE FUTURE



Ljubljana, February 2020

5

CONTENT

1. INTRODUCTION ................................................................................................... 9

2. CHINA IN THE GLOBAL ECONOMY .............................................................14

2.1. General economic developments .................................................................14

2.2. China is also enhancing its soft power ........................................................26

2.3. Future development challenges ...................................................................28

2.4. China inward and outward foreign direct investment trends ..................37

2.4.1. China as global investor ....................................................................... 37

2.4.2. Chinese inward FDI ............................................................................. 39

2.4.3. Chinese outward FDI ........................................................................... 43

2.5. Technological transformation of the Chinese economy............................47

2.6. China in the global power structure ...........................................................60

2.7. EU policy on China ........................................................................................68

2.7.1. Introduction ...........................................................................................68

2.7.2. Evolution of the EU–China Strategy ...................................................71

2.7.3. Trade and Intellectual Property Rights ..............................................73

2.7.4. Foreign Direct Investment ....................................................................76

2.7.5. Fifth-generation technology network standard .................................84

2.7.6. Concluding remarks ..............................................................................87

3. SLOVENIA-CHINA BILATERAL RELATIONS ..............................................88

3.1. Short history of bilateral cooperation .........................................................88

3.2. Slovenian attitudes to cooperation with China .........................................92

3.3. Slovenia foreign policy relations with China .............................................94

3.4. Institutional basis for mutual cooperation ..................................................98

4. ECONOMIC COOPERATION BETWEEN SLOVENIA AND CHINA ....103

4.1. The role of Port Koper..................................................................................103

4.2. Other Slovenia’s comparative advantages and fears ................................106

4.3. Foreign trade .................................................................................................107

4.4. Trade with Hong Kong ................................................................................113

4.5. The changing structure of Slovenia’s trade with China ...........................115

4.6. Investment cooperation ...............................................................................120

4.7. Some problems and how to overcome them .............................................128

6

5. FUTURE POTENTIAL FOR ECONOMIC COOPERATION BETWEEN

SLOVENIA AND CHINA .................................................................................135

6. THE 17+1 INITIATIVE ......................................................................................142

6.1. General framework ......................................................................................142

6.2. Economic cooperation trends .....................................................................149

6.3. Slovenia in the 17+1 scheme .......................................................................152

7. HOW TO PROMOTE FUTURE BILATERAL COOPERATION? .............155

8. OVERCOMING CROSS-CULTURAL DIFFERENCES SO AS TO EN-

HANCE BILATERAL COOPERATION ..........................................................163

8.1. The general importance of cultural differences for international

negotiations ...................................................................................................164

8.2. Dealing with the Chinese .............................................................................166

8.3. How are these general principles echoed in

real-life negotiations? ....................................................................................169

Bibliography ...............................................................................................................172

Appendix 1: Visits by Slovenian High Representatives to China: .......................188

Appendix 2: Major Bilateral Agreements between Slovenia and China ............190

Appendix 3. Africa’s Size is Difficult to Comprehend without Comparisons ...192

7

LIST OF TABLES

Table 1: Shares in the Real global GDP in 2005 PPP (in %) ..........................................18

Table 2:

Projected rankings of top 10 economies based on GDP at PPP (in constant

2016 USD billion) ................................................................................................19

Table 3:

Major bilateral meetings until 1996 ...................................................................96

Table 4:

Interests in bilateral cooperation ........................................................................97

Table 5:

Major economic agreements between Slovenia and China ............................98

Table 6:

Foreign trade of Slovenia with China 1994–2019; shares in total exports and

imports of Slovenia (in %) .................................................................................109

Table 7:

Share of foreign trade with Hong Kong in total trade with China (in %) ...114

Table 8:

Trade structure of exports and imports of Slovenia with China 1994–2015

(SITC rev.2), in % ...............................................................................................116

Table 9:

Structure of Slovenia’s exports to China in 2019 ............................................117

Table 10: Structure of Slovenia’s imports from China in 2019 ......................................118

Table 11: Slovenian foreign direct investment in/to China (EUR million) .................122

Table 12: Shares of world exports and imports of all goods and services by countries/

groups 2004–2030 (in %) ..................................................................................136

Table 13: 16+1 institutionalisation progress ....................................................................153

Table 14: China and Slovenia GDP per capita PPP – forecast 2020–2022 ..................158

LIST OF FIGURES

Figure 1: Hegemonies’ share in gross planet product (GPP) 1870–2016 ......................14

Figure 2: Economic history of China and other major players; shares of world

GDP ........................................................................................................................15

Figure 3: China’s rapid growth translated into rising living standards ..........................16

Figure 4: China could overtake the United States by 2030 ..............................................16

Figure 5: Top 10 economies in 2050 at market exchange rates (nominal GDP in USD

billions) ..................................................................................................................17

Figure 6: Share of world GDP (PPP) between 2016 and 2050 ........................................18

Figure 7: Global market shares by selected industries .....................................................19

Figure 8: Trade in goods and services as % of GDP .........................................................21

Figure 9: Share of manufacturing value added (current dol ars) in % ...........................21

Figure 10: Knowledge intensity of exports, 1992–2015 .....................................................22

Figure 11: Contribution to GDP growth by expenditure component (in %) .................23

Figure 12: Contribution to world GDP growth, 1981–90 to 2041–50, for a selected

group of countries (in %) ....................................................................................24

Figure 13: China has reduced its exposure to the world, while the world has increased it

(index) ....................................................................................................................25

Figure 14: World earth mining production .........................................................................33

Figure 15: Reliance on rare earth imports from China (based on volume, not value) ...34

Figure 16: China has lifted wages and increased domestic demand (average real wage

index for emerging G20 countries, 2008–17 .....................................................35

8

Figure 17: Manufacturing cost index; US=100 ...................................................................36

Figure 18: FDI inflows by selected major host economies,2018 and 2019

(USD billion) .........................................................................................................37

Figure 19: FDI outflows by selected top home economies, 2018 and 2019 (USD billion) 37

Figure 20: EU (27–China foreign direct investment (stock in EUR billion) ..................38

Figure 21: FDI inflow to mainland China by source country (USD billion) ..................39

Figure 22: FDI inflow into mainland China by source country (in %) ............................40

Figure 23: Annual value of completed Chinese FDI transactions in the EU-28 (EUR bil-

lion) ........................................................................................................................44

Figure 24: Chinese FDI in the EU-28 by country group, 2010-2019 (in %) ...................45

Figure 25: Cumulative value of Chinese FDI transactions in the EU by country, 2000–

2019, (EUR billion) ..............................................................................................46

Figure 26: Gross domestic expenditures on R&D PPP, 2000–2017 .................................50

Figure 27: Global patents (shares of global total) ...............................................................51

Figure 28: Location of the world’s biggest tech companies ...............................................52

Figure 29: Has your view of China changed during the Covid crises? ............................70

Figure 30: Chinese overseas traffic through Koper in tonnes ........................................ 104

Figure 31: Trade in goods between Slovenia and China 2014–2020 (EUR million) .. 110

Figure 32: Imports of Slovenia from China 2000–2019 (EUR million). ..........................110

Figure 33: Export of Slovenia to China 2000–2019 (EUR million).s ............................ 111

Figure 34: EU trade flows and balance with China 2009–2019 (EUR mil ion) ........... 113

Figure 35: EU–Hong Kong trade in goods (EUR billion) .............................................. 115

Figure 36: EU-(27)–Hong Kong FDI (EUR billion) ........................................................ 115

Figure 37: China is already the world’s largest source of tourists – most to Greater China

– but increasingly they are visiting other destinations ................................. 119

Figure 38: Shares of global middle class projections ,2000–2050 .................................. 137

Figure 39: China’s consumption growth over the next 15 years might be comparable

with that of the USA and Western Europe (incremental growth in consump-

tion, USD trillion, constant 2016 prices) ........................................................ 137

Figure 40: Despite fast-growing private consumption, China imports fewer consumer

goods than developed economies do (%; USD billion) ................................ 138

Figure 41: Chinese FDI stock in the Balkans (in USD million) .................................... 152

Figure 42: Projections of Slovenia and China GDP per capita growth 2000–2022 (PPP,

EUR) .................................................................................................................... 158





9

1. INTRODUCTION1

I still have a strong memory of the response given by the Pakistani Nobel Laureate

for physics (1979) Abdus Salam many years ago while discussing the technology

gap when a western academic claimed that Europe and the USA were technologi-

cal leaders while the other countries were just followers. He responded: »Please

be more modest saying that because the West and Europe have been technologi-

cal leaders for only about 200 years. The rest of the history China and India were

the major economic player in the world for almost 1,800 years« (see Figure 2).

This shows that M. Porter was right when saying that development is not a linear,

ever-growing process (1990). It can stop and can decline to a wealth-driven stage.

Countries can move backwards, as happened with China after closing down not

only once in its history. When open, it has prospered like it is doing today, after

having opened itself up 40 years ago.

Upon the anniversary of this opening up and following the spectacular growth

seen in the last 40 years, it is time to review the historical course of relations

with China and whether countries, in this case Slovenia, have benefited from

China’s fantastic growth record. Particularly in line with suggestion of Arora and

Vamvakidis (2005) that countries should promote their development by enhanc-

ing cooperation with countries technological y on a higher level, to learn from

them and secondly with those growing fast, like China has done over the past

40 years. The incomes of the Chinese have been rising as have their purchasing

power and position in the global economy/system general y. Has Slovenia been

able to catch at least some of the ‘crumbs that fall off this table’? It is important to

know this because first-movers in new markets enjoy certain advantages, espe-

cial y if a small country is concerned that cannot compete with its resources and

power, but perhaps on the speed of adjustments or predicting changes and adjust-

ing to them ex ante.

1

The author wishes to thank Zvone Dragan, Tanja Drobnič, Saša Istenič, Marko Jare, Uroš

Lipušček, Vlado Lukanc, Miloš Prislan and Matevž Rašković for their many helpful comments

and suggestions on the first draft of this paper. The author, however, bears full responsibility for the final version. Parts of this book were used in preparation for Svetličič: Slovenia–

China (Economic) Relations; in China and Central Europe: Success or Failure?, ed. by Tamás

Matura, Dialóg Campus, Budapest, 2020.

10

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Already in 2006, the article »The Chinese are coming2« (Svetličič and Sicherl,

2006) called for enhancing economic cooperation with China in view of the

Chinese economy’s then spectacular growth. A scenario using time-distance

methodology predicted that China could catch up with Slovenia in terms of GDP

per capita by purchasing power parity (PPP) if the growth rate difference between

the two economies reaches 4% already in 2034. Chinese GDP pc in 2005 was than

4.6 times smaller than the Slovenian. By 2019, the gap had halved in 14 years to

just 2.4 times. The gap is still large3. Catching up will obviously take more time al-

though the difference in growth rates is still quite substantial y in favour of China.

But many events that were not anticipated like the Great Recession (GR) and now

the Covid pandemic, for instance, have introduced doubt concerning this.

The present Covid-19 health crisis has also forced the world to look at China’s

development more closely. Not simply since the pandemic started in China, but

because, »after an initial failure, China has fought back and contained Covid-19

more efficiently than any another state, save perhaps for Taiwan. It is also already

distributing hundreds of thousands of vaccines as a test, which will soon replace

mask diplomacy as a key international asset /…/ China’s economy has rebounded

at a better rate than any competitor. And with a twist: China has not sustained

domestic demand with quantitative easing as other central banks have. Instead,

it has used the gap between the consumption demand of its partners (precisely

due to quantitative easing elsewhere) and their production capacity (reduced by

Covid-19) to base its own recovery on exports first. In short, China is free-riding

on its main partners. China’s balance of trade and its current account are back

at record surplus levels, and this even with state-driven capital exports over this

summer« (Godement, 2020). Second, because China is reassessing and adjusting

its policies to the unfavourable international environment that has emerged by

reaffirming the importance of increasing the country’s self-reliance and focusing

on domestic circulation 4 (Zhu, 2020).

2

The title was an al usion on the popular movie comedy in USA in mid-sixties; »Russians are

coming«, about how a submarine landed in USA and how Americans were afraid of such an

invasion.

3

China’s GDP PPP in 2019 being, according World Bank data, USD 16,830 while Slovenia’s

was USD 40,963. In this 14-year period, China’s GDP pc grew approximately twice as fast as

Slovenia’s (3.3-fold while Slovenia’s just 1.6-fold).

4

See the difference between domestic and international circulation in Li, 2020.

Introduction

11

By opening itself up, China has transformed itself5– and the world along with it. By

2017, China accounted for 15% of world GDP. It had overtaken the United States

to become the world’s largest economy in PPP terms in 2014. Nominal y, China’s

GDP was 64% that of the USA in 2017, making it the second biggest economy in

the world (Woetzel et al. 2018). »It is increasingly clear that China is becoming the

largest economy of the planet Earth6. It is already the case in terms of population

and international trade and is almost the case or it will soon be the case in terms

of share in GPP«. It was only in the nineteenth century that China lost this posi-

tion to the British Empire, while after the Second World War the USA took over

the mantle. But it it will take a further quarter of a century before China’s share of

the global planetary product (GPP) matches that held by USA at the start of the

millennium.

This means it is real y crucial to evaluate China’s development and bilateral rela-

tions to ex ante adjust to China’s present and future role in the global economy.

Not least to adjust our stereotypes about China. The Chinese are too often seen

by self-centred and judgmental Westerners (The Economist 2020, Nov. 7, 50) as

being from another planet, according to ethnocentrism or Eurocentric views (see

Svetličič, 2020a), as an extreme, as second rate citizens of the world (see more

in Ch. 8). Already now, »2.6% of consumption in the rest of the world is im-

ported from China. In many consumer categories, China is the largest market

in the world. Today, China accounts for 30% of global auto sales, 43% of unit

sales of electric vehicles, and 42% of global retail e-commerce transaction values«

(Woetzel et al. 2018). Yet, we are forgetting that it is no longer just an exporter of

5

Internal political changes are however lagging well behind the economic changes. The

»ideology« behind emphasising the economy before politics, before democratisation is,

that wealth, economic affluence, is more important than political liberties. A research

paper published by the Ash Center for Democratic Governance and Innovation at Harvard

University’s John F. Kennedy School of Government confirms the above-mentioned strategy

and Mahbubani’s statements (2020) of the Communist Party’s support in China. »Chinese

citizen satisfaction with the government has increased virtual y across the board. From the

impact of broad national policies on the conduct of local town officials, Chinese citizens

rate the government as more capable and effective than ever before. Interestingly, more

marginalized groups in poorer, inland regions are comparatively more likely to report increases

in satisfaction«, the paper states (https://nationalinterest.org/feature/book-review-has-china-

won-chinese-challenge-american-primacy-168885). The Economist (2021, 23 January, 4, 7)

even report, »that young Chinese (four in five students are members of the Communist Youth

League) do not intend to challenge the legitimacy of the ruling Communist Party. Their social

liberalism has grown even as support for the party rises. The jiulinghou (generation born

between 1990–1999) are comfortable with a rising, assertive China«.

6

International Monetary Fund (IMF) predicts that China may overtake the US (on 2017 ex-

change rates) in 2030 (IMF, 2018) and by 2030 also in terms of nominal GDP.

12

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

simple standardised products. Technology-intensive products have been rising in

importance. »China is now the second largest R&D spender in the world, after the

United States. It leads key segments of the digital economy such as e-commerce

and on-demand services. However, it is not yet a major technology supplier and

exporter of R&D« (ibid., 2018). Compared to the world’s largest R&D performer,

the USA, China ranks second, and is broadly similar to the combined EU-28

area. China has a similar share of gross R&D expenditure financed by industry

(between 75% and 80%) to Japan and South Korea, all of which well exceed the

OECD average of 60.9% (Amighini, 2019, 18). In short, China is transforming it-

self from a technology laggard to a technology leader in many areas7. Perhaps the

biggest reason that some see a technology cold war between the USA and China

coming. Trump’s policies on 5G or vis-à-vis Huawei clearly demonstrate this.

As this study will demonstrate, such tectonic changes in the role held by China

have general y been underestimated in Slovenia by politicians8, managers9 and

most academics10. The big wake-up call came very late11, despite the foundations

7

More in chapter 2.5.

8

The first economic strategy on China was only developed in 1999 by the Ministry for

Economic Cooperation and Development (MEOR) and the Slovenian Chamber of Economy

(for more, see Ch. 5).

9

Actual y, some managers started to be aware of the opportunities in China much earlier than

politicians.

10 Some have tried to draw China’s spectacular development to the attention of the Slovenian

public, politicians and business community, but with not much success (see Svetličič 2004;

Svetličič and Sicherl, 2006).

11 In 2008, a group of researchers clearly indicated how important enhancing cooperation with

BRICS would be in this context particularly with China. The concluding chapter suggested:

»The winners of the tomorrow's world will be those who will be able to choose the right

moment to respond to the changes that are coming and which will properly anticipate and

adapt to them in a timely manner. In spite of all uncertainties that accompany any prognosis,

it is clear, that China is on the path of fast and sustainable, albeit lower growth rates than in the past in the coming decades, and returning to positions it has historical y had. The winners

of the "tomorrow" world will therefore be those who will be able to respond at the right time and adapt to the tectonic changes in the world market, and those who will be able to detect

the true direction of these changes. The rise of China and India as the world's leading actors

today is as dramatic as the Germans were in the 19th and the US in the 20th century. Where

in these movements from the 20th century to the 21st century will be Slovenia, depends to a

large extent on ourselves. That is why it is crucial today to "discover" new emerging centers of economic power as a new great opportunity, as Marco Polo was about 800 years ago, and we

shake our fears that the rapid development of these economies threatens our development.

This can only be done by replacing a defensive policy with regard to globalization with a

proactive policy of hunting opportunities in its sails in order to strengthen competitiveness«

(Burger et al., 2008).

Introduction

13

very early on for good and fruitful cooperation between the two countries. The

moment was missed with respect to enjoying first-mover advantages. Even today,

cooperation lags well behind the potential. Reasons for this include too strong

reliance on cooperation within the EU alone, thereby missing out on opportuni-

ties elsewhere which might, among other things, also help make the Slovenian

economy more resilient in this volatile, ever more unpredictable world. It was

long ago emphasised that a small country like Slovenia must »walk on two legs;

EU and global« (Svetličič, 30–31).





14

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

2. CHINA IN THE GLOBAL ECONOMY

The size and importance of its growth for the global economy’s future development

mean that China’s development is central to any country’s development strategy.

Strengthening Slovenia’s cooperation with China is strategical y vital both politi-

cal y and economical y. A closer look at its development is therefore essential,

which is the objective of this chapter. We especial y consider China’s role in the

global economy, its technological transformation, EU policy (of which Slovenia is

part) on China and, lastly, how to overcome the huge cultural differences which

could erode trust, namely an important asset in this volatile VUCA world.

2.1. GENERAL ECONOMIC DEVELOPMENTS

The growth seen in China’s GDP after it opened up and reformed its economy/

system in 1978 has been spectacular. It has averaged at almost 10% a year and

more than 850 million people have been lifted out of poverty (in the past 5 years

55 million people; CGTN, 2020). Its economy has expanded from a modest USD

149.5 billion in 1978 to USD 13.68 trillion in 2018. While the growth rate has been

slower in the last few years, particularly after the Great Recession (GR), China

has reached upper-middle-income country status by World Bank standards and

become the world’s second-largest economy.

Figure 1: Hegemonies’ share in gross planet product (GPP), 1870–2016

Source: Van Bergeijk, 2018, 15.



China in the Global Economy

15

Even today, China is the biggest economy in the world by number of inhabitants,

volume of trade, and soon also by size of its GDP. However, it will take another

25 years before China’s share in GDP equates to what the USA had at the start of

the millennium.

Many believe that it holding such a role is a total novelty, but this is not the case.

Few people in the West realise how economical y and technological y advanced

China was in the 1400s (Edwards, 2017) and how it dominated the global system

until the late 18th century.

Figure 2: Economic history of China and other major players; shares of world GDP

Source: The Economist, June 2012.

From a historic perspective this is China’s natural position. Only in the nineteenth

century China lost that position to the British Empire and after the Second World

War the USA captured the lead. Figures 1 and 2 show how the position of he-

gemon has been handed over. Like in the 1930s, we see that an eminent change

at the top occurs in the context of a crisis and a slowdown (if not breakdown)

of an era of globalisation. In the 1930s, the USA undercut the economic power

of the British Empire. Today, we may observe how the re-emergence of China is

challenging the position held by the USA (see Van Bergeijk, 2018, 15). However,

by per capita income China is still only at the level of about one-quarter of the

high-income countries. China is also lagging in labour productivity and human

capital. Income inequality has improved over the last decade but remains quite

high. About 373 million Chinese are living below the upper-middle-income pov-

erty line of USD 5.50 a day (World Bank, 2020).





16

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 3: China’s rapid growth translated into rising living standards

Source: IMF, 2018, 4.

With its spectacular growth, China has transformed the world. In 2017, nominal

Chinese GDP was 64% of that of the USA. Already in 2014, China had over-

taken the world’s biggest economy in PPP (Bergsten, 2018, 2). The International

Monetary Fund (IMF) predicts China may move past the USA (using 2017 ex-

change rates) in 2030 (IMF, 2018). And, by 2030, it might also do it in terms of

nominal GDP.

Figure 4: China could overtake the United States by 2030 (nominal GDP in USD tril-

lion, assuming market exchange rate of 2017)

Source: IMF.



China in the Global Economy

17

China is well on its way to becoming the world’s largest economy by 2035 by share

in global GDP with China first (20%–24%), the USA second (13%–16%) and two

contenders for third place: the EU-27 (11%–12%) and India (9%–12%). It thus

might not be appropriate to speak of a G-3 but of a G-1, 2 and 3, in which the EU-

27 is the smallest, possibly even surpassed by India. Yet the question is whether

China can geopolitical y substitute the USA as the world hegemon (European

Parliament, 2018, 16, 18).

Its domination might even be more accentuated when projecting the develop-

ment level in the 2050s when, according to China’s nominal GDP lead, it could

be substantial, followed by the USA and India in third place. Figures 5 and 6

demonstrate how huge transformations are expected in the global system. Pax

Americana is being eroded.

Figure 5: Top 10 economies in 2050 at market exchange rates (nominal GDP in USD

billion)

Source: The Economist Intelligence Unit, 2015, 3.

The share of China will rise and those of the USA and the EU will fal .



18

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 6: Share of world GDP (PPP) between 2016 and 2050

Source: Price Waterhouse, 2015, 2.

The shares could rise further by 2060 as the USA is projected to achieve only 57%

of China’s GDP at PPP.

Table 1: Shares in real global GDP in 2005 PPP (in %)

2011

2030

2060

China

17

28

28

USA

23

18

16

Euro area

17

12

9

Source: OECD, 2012, 7.

The situation is of course quite different with GDP at PPP or GDP per capita. At

PPP China was projected to overtake US GDP around 2020. Purchasing power

indicators are of course the most important indicator for future prospects for co-

operation, reflecting the potential purchasing power of Chinese consumers. Table

2 clearly reveals that here China is already number 1, enhancing its primacy over

the years. India is following suit, while the USA is expected to drop to third place

in 2050.





China in the Global Economy

19

Table 2: Projected rankings of top 10 economies based on GDP at PPP (in constant

2016 USD billion)

Source: Price Waterhouse, 2017, 23.

Although China will double its GDP per capita from the current USD 10,000 to

USD 21,000 by 2035, it will still remain at just below 50% of the level of the EU

(European Parliament, 2018, 7).

In terms of market shares, China has also enhanced its position tremendously. It

holds a dominant position in several sectors as a result of the technological trans-

formation of the Chinese economy (for more, see Ch. 2.2).

Figure 7: Global market shares by selected industries

Source: The Economist, 2019, July 13, 6.

20

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Such a pace and scale of China’s economic transformation are unprecedented (Zhu,

2012; 103). Its economic growth over the previous three and a half decades has been

based on several key factors: a sequence of market-oriented institutional reforms,

including openness to international trade and direct investment, combined with

low wages and a favourable demographic structure (Wei et al., 2017). China has

made great changes in production, but also in the volume and structure of global

trade in the last decade. The biggest change seen in the structure of global goods

exports is the expansion of the share held by Chinese exports in global exports.

With exports growing at an average annual rate of 6.1%, China moved from be-

ing second-largest exporter in 2008 (behind the USA) to the largest exporter in

2018. It became the leading merchandise trader despite the growing global trade

tensions. With a share of 13% of total exports and 11% of total imports, China’s

exports stood at USD 2.49 trillion and its imports at USD 2.14 trillion in 2018,

rising at the fastest pace since 2012. China’s exports recorded the strongest export

growth (17%) among the top 10 economies in 2018 and remained the world’s

fifth-biggest services exporter. Information and communications technology ser-

vices, largely computer services, expanded by 69% in 2018, exceeding the export

value of transport and travel. China confirmed its position as the second-largest

importer of commercial services with a bigger share of world imports (9.5%). This

was mostly thanks to its high travel expenditure abroad, which accounts for more

than half of its services payments (WTO, 2019, 48, 51).

Before the reforms in the late 1970s, China’s high growth was based on resource-in-

tensive manufacturing, exports, and low-paid labour, which all reached their limits

in the last decade. Nevertheless, it is wrong to think that the basis for China’s spec-

tacular growth has simply been exports, even if initial y this was the case. During

and after the GR, changes were visible. The share of exports in GDP started to

decrease (from 36% in 2006 to 18% in 2019; The Economist, 2020, Nov 7, 49).





China in the Global Economy

21

Figure 8: Trade in goods and services as % of GDP

Source: European Parliament, 2020a, 3.

Therefore, the economy’s transformation relied on increasing the value added and

importance of technology-based exports and reducing the share of labour-intensive

products. It is no longer just an exporter of simple, standardised products. As it

develops, China is turning itself ever more into a producer of finished products and

moving away from being an assembler of imported parts. Value added is increasing.

Figure 9: Share of manufacturing value added (current USD) in %

Source: The Economist, 2020, June 27, 59.



22

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Not only has the value added of manufacturing exports risen, but the share of the

knowledge-intensity exports has started to increase.

Figure 10: Knowledge intensity of exports, 1992–2015

Source: European Parliament, 2018, 14.

The quality of China’s manufacturing exports is also improving very rapidly,

while its manufacturing ‘fitness’, a measure of manufacturing capability, is on

a par with that of high-income economies. Further, services have taken over

manufacturing as providing the largest share of GDP and is now the largest

contributor to GDP growth. Meanwhile, domestic consumption, rather than

investment, is becoming the main driver of demand thanks to the growing mid-

dle class and rising urbanisation (see World Bank and Development Research

Centre of the State Council, the People’s Republic of China, 2019) as Figure 11

indicates. Consumption is clearly in the lead, not trade which used to be so

important after the opening up and investments before then12. In 11 of the 16

quarters between 2015 and 2018, consumption contributed more than 60% to

China’s GDP growth.

12 Michael Porter would say, in its investment driven development strategy, followed by countries at a lower level of development.



China in the Global Economy

23

Figure 11: Contribution to GDP growth by expenditure component (in %)

Source: McKinsey 2019c, 49.

The driving force of the country’s development has become people13. Their con-

sumption has already accounted for up to 60% of total GDP growth in the 15

quarters since 2015. In the first half of 2018, this proportion had risen to 80%.

In many consumer categories, China is now the world’s largest market. Today,

China absorbs 30% of global car sales, 43% of electric vehicle sales14, and accounts

for 42% of global online retail transactions (Woetzel et.al., 2018).

The Chinese economy has also gradual y started to move from basical y a foreign

technology imitation strategy to innovation-driven development, at least in cer-

tain priority sectors. New drivers of growth have begun to play the role as have the

parallel social economic reforms of the institutional system, which has tradition-

al y lagged behind economic development.

China has accomplished such progress by exploiting all of the benefits provided by

the rules of the international economic system15. It has been able to take advantage

of globalisation while at the same time curtailing its negative effects. It has followed

globalisation and political autonomy/sovereignty tracks and ignored the third part

of Rodrik’s trilemma: democracy. Historical y looking, Yugoslavia was developing

under a similar dichotomy. It combined economic liberalisation under the first

13 More on changes of the development strategies in Ch. 2.3.

14

China now produces and sel s more electric cars then the rest of the world combined (Krischer

et. al., 2020, 58).

15

Lipton (2018) wrote that »China has embraced a sort of la carte globalization, adopting the rules and standards it finds most useful – like the ability to expand its companies and investments

abroad – while discarding those that threaten its unique political and economic model.«



24

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

market-oriented reforms among socialist countries in 1965, paving the way for co-

operation with the West, even opening the borders for joint ventures entailing for-

eign capital and a socialist, more authoritarian, political system. This shares some

similarities with China’s Going Global strategy on one side, and an authoritarian,

political non-democratic regime on the other side. In this way, Yugoslavia, with

Slovenia as its major Western-oriented republic, was some kind of predecessor re-

garding such a duality between a socialist domestic political system and a kind of

market-oriented socialism also exploiting the benefits of the global market.

China’s own economy does not ful y function according to the principles of the

international economy or when the operation of foreign companies in China is

involved. It: i) prioritises its state-owned enterprises; ii) impedes the entry of new

private companies and restricts competition; and iii) takes over foreign companies

and hampers foreign takeovers at home. Its socialist/authoritarian arrangement

allows it to play abroad by the international rules, but at home according to its

own rules. Under the pressure of developed countries, China is trying to gradual y

synchronise both policies (see Rodrik, 2011). Such a duality in its strategy is made

possible by its huge size and consequent driving role in the global economy and

importance as a consumer.

Such tectonic changes are not only important in terms of size effect and role in the

global economy but in terms of their impact on the growth of other countries: the

whole world economy. It is in the interests of all for China’s development in the

future to also be fast and stable since its growth contribution is so vast. Together

with India, it contributes over 50% to global growth (see Figure 21).

Figure 12: Contribution to world GDP growth, 1981–90 to 2041–50, for a selected

group of countries (in %)

Source: The Economist Intelligence Unit, 2015, 4.



China in the Global Economy

25

In addition, the world is increasingly interconnected with China in trade (and

GVCs), technology and capital. The result is that the world is more economical y

exposed to China, while China has gradual y reduced its exposure to the world

since 2007.

Figure 13: China has reduced its exposure to the world16, while the world has increased

it (index)17

Source: Woetzel et al., 2018, 5.

For trade, the importance of China as a market and a supplier of goods and ser-

vices to the global economy has been measured18. For technology, the importance

of Chinese technological exports for global R&D spending. For capital, the im-

portance of China as a supplier of financing and as a destination for investment.

The authors found that between 2000 and 2017 the world’s exposure to China

increased in all three dimensions, with the aggregate index rising from 0.4 in 2000

to 1.2 in 2017. In contrast, China’s exposure to the world was much weaker and

even declined from 0.9 in 2007 to 0.6 by 2017. The difference in exposure makes

the world much more dependent on China’s growth than the other way around. It

also strengthens its general bargaining position, making negotiations asymmetric.

This can also explain why the duality of its performance exploiting the global rules

international y and only weakly at home has been silently overlooked or tolerated

for so long.

16

The seven large economies include: China, France, Germany, India, Japan, the UK and the USA.

17 Includes trade, technology and capital exposure metrics.

18 For methodological explanations, see Woetzel et al., 2018.





26

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Such an exposure is important in view of the trade war as in the one Trump

started since China’s room for manoeuvring is much larger than the US one, or

that of other developed countries being more dependent on imports from China.

Particularly when it comes to some strategic, or rare earth materials (see figures

14 and 15).

2.2. CHINA IS ALSO ENHANCING ITS SOFT POWER

While this is objective data, a country’s position in the global economy, the world

system, depends not only on it, but also on the ‘soft’ factors, on the reputation

or perceptions of others countries’ soft power. The capacity to influence others

means possessing resources such as population, land, natural resources, economy,

armed forces, and political stability (Nye & Welch, D. A., 2014). Soft and hard

power are obviously not alternatives, but complements. In the words of Melissen,

»the wheels of hard power can only function smoothly with the lubricant of soft

power« (Ham, 2005). Lacking in the componentst of soft power, China has started

to complement its hard power by more intensively relying on soft power based on

six pil ars: cultural attractiveness, political values, development model, interna-

tional institutions, international image, and economic temptation (Li and Worm,

2010). However, it does not try to export so much its »unique political model, its

indigenisation of capitalism, something hybrid and hard to categorise« (accord-

ing to Brown, 2020, 22) as the Soviet Union did, but chiefly pursues its economic

interests global y. By doing so, it can also indirectly pursue its ideology by spread-

ing its soft power.19

Tai-Ting Liu (2019) considers how ‘telling a good story of China’ and the concept

of the ‘China Dream20’ have been utilised to cope with the widespread ‘China

threat theory’ and improve China’s status and image. He concludes that by mak-

ing such efforts, China seeks to move away from the popular image of ‘China as

a threat’ to a more cordial image of China as a friendly and peace-loving nation.

Such a new effort is replacing the older concept of ‘charm offensive’ (Kurlantzick,

2007, 6) aimed at improving its global status and image. While the idea of China

charming the world with its economic and cultural prowess has not changed too

19 China has long recognised it suffers from »a soft power« deficit. Its cultural influence has not grown as fast as its economy. Therefore, in 2007 then President Hu Jintao declared that getting

other countries to like China was a national priority (The Economist, 9 February 2019, 44).

20 Even before Trump took office, China was on its way to “make China great again”. If the

“China Dream” is the domestic aspect of the current holistic global vision of Xi’s People’s

Republic, then the BRI is its outward face (Brown, 2020, 16, 17).

China in the Global Economy

27

much over the past decade, in recent years ‘public diplomacy’ has come to re-

place the charm offensive as China’s latest efforts to improve its status and image

through soft means (Tai-Ting Liu Tony, 2019, 77).

The recent health or mask diplomacy may be included as an additional ‘weapon’ for

enhancing China’s soft power »with Chinese characteristics« (Glaser & Murphy,

2009). More important and already in use for a decade, another instrument is

the increasing share held by the Chinese in international organisations. Beijing

has quietly been seeding the UN and a host of other international organisations

with its own nationals, racking up greater influence even as Washington is in

headlong retreat (Lynch 2020). Chinese lead 4 out of all 15 UN specialised agen-

cies ( International Civil Aviation Organisation, International Telecommunication

Union, Food and Agriculture Organisation, and UN Industrial Development

Organisation)21. China has also been (unsuccessful y) running a campaign to lead the World Intellectual Property Organisation.

Beijing’s campaigns to project itself as a ‘charming’ sovereign through different

slogans – »Chinese Dream«, »Peaceful Rise«, and »Five Principles of Peaceful

Coexistence« – seem to have failed to convince the world of its peaceful rise. The

subsequently added slogan »One Belt One Road« is viewed as another step in its

‘charm offensive’ and generous investments. Lin (2011), for instance, argues that

»conceptual y, China’s New Silk Road is based on China’s resurging imperial role

in the world, that helping Asian neighbours is merely a strategic frontier doctrine

implemented by Beijing, a new strategy of gaining further influence and even its

road to become a hegemony«. There are theoretical and historical reasons in sup-

port of this perception. Some international relations theories assume that it is

impossible for China to rise peaceful y (see Attanayake, 2016).

Whatever China does in this soft power offensive, it will be very difficult to change

one aspect of the USA’s very important soft power, that is, the American way of

21 See Kredo, 2020. Important positions are held by:

1. Liu Zhenmin, undersecretary general for economic and social affairs at the United Nations

2. Haoliang XU, UN Assistant Secretary-General, UNDP; UNDP Assistant Administrator

and Director for the Bureau for Policy and Programme Support

3. Zhang Tao, deputy managing director of the International Monetary Fund

4. Yi Xiaozhun, deputy director general of the World Trade Organisation

5. Yong LI, Director General United Nations Industrial Development Organisation (UNIDO)

6. Liu Fang, secretary general, International Civil Aviation Organisation

7. Zhao Houlin, secretary general of the International Telecommunication Union

8. Xue Hanqin, vice-president of the International Court of Justice

9. Qu Dongyu, director-general of FAO (see https://www.scmp.com/news/china/diplomacy/

article/2167522/which-chinese-hold-top-jobs-key-international-bodies).





28

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

life, which has many followers around the world. Not least because the Chinese

would also like to enjoy American standards, to imitate the American way of life,

particularly the young generation. This is an important dimension of the USA’s

soft power, its prestige and one of the pil ars of its world leadership.

2.3. FUTURE DEVELOPMENT CHALLENGES

China has historical y often oscil ated between opening up to and closing itself off

from world influences. Partly this has related to its role in the world (to achieve or

hold on to its imperial position or not?) and partly due to internal issues.

The lessons of history are more in support of the opinion that China is not (yet

at least) aiming to achieve the imperial position. But it does support the opinion

that internal reasons could play a decisive role in opening or closing up strat-

egy. After Admiral Zheng He’s successful expeditionary, treasure-yielding voy-

ages to Southeast Asia, the Indian subcontinent, Western Asia, and East Africa between 1405 and 143322, such an outward oriented strategy has stopped. By 1525,

all of China’s ‘Treasure Fleet’ ships had been destroyed – burned in their docks

or left to rot. China had been poised to circumnavigate the globe decades before

the Europeans did, but instead the Ming Dynasty withdrew into itself and entered

into a 200-year-long slump. Historians have a variety of explanations for this. The

Yongle Emperor was distracted by a land war against the Mongols, a conflict in

which the navy was irrelevant, for instance. Others argue that the vast cost of the

Treasure Fleet’s expeditions far outweighed the actual treasure they came back

with. But Angus Deaton, the Nobel Prize-winning Princeton economist, prefers a

different theory. In his book »The Great Escape: Health, Wealth, and the Origins

of Inequality«, he argues that the Chinese burned their boats (almost literal y) in

an attempt to control foreign trade. The Treasure Fleet was abandoned at the be-

hest of the political elite in the Emperor’s civil service who had become alarmed

at the rise of the new rich merchant class. »The emperors of China, worried about

threats to their power from merchants, banned oceangoing voyages in 1430, so

22 In the 1400s, China owned the greatest sea-going fleet in the world, with up to 3,500 ships at its peak (the US Navy today only has 430). Some of them were five times the size of the ships

being built in Europe at the time. The Treasure Fleet was vast, some vessels were up to 120

m long (Christopher Columbus’s Santa Maria was only 19 m and the famous Vasa ship, built

much later (1628) was only 69 m long). A Chinese ship might have several decks inside it, up

to nine masts, twelve sails, and contain luxurious staterooms and balconies, with a crew of

up to 1,500, according to one description. On one journey, 317 of these ships set sail at once

(Edwards, 2017).

China in the Global Economy

29

that Admiral Zheng He’s explorations were an end, not a beginning«, Deaton

writes (see Edwards, 2017). In this, China, by cutting its international links,

turned inwards, which then derailed its fast progress. Another explanation may

be the country’s rulers were afraid of foreign influence, a fear historical y so deeply

rooted in Chinese minds. The Century of Humiliation that began with the Opium

War of 1839 is still alive in the minds of the Chinese. »Only by standing up to the

West, the message goes, can China rise again« (The Economist, 23 January, 7).

Why is this history perspective relevant? Perhaps because also today the business

elite’s role is growing and it could also try to become more influential, leading to

fears of a political elite. The Party could be tempted to repeat history and try to

limit such an influence of the business, rich elite by limiting their power23, curtail-

ing their growth potential, and supressing the innovativeness of such companies.24

Despite the impressive economic results, we should not dive into economic de-

terminism or underestimate the developmental problems the Chinese economy is

and will be facing in the future. Its growth is based on two long-term unsustain-

able structural features: an extremely high level of indebtedness, and imprudent

lending to its state-owned enterprises. Seismic demographic change is around the

corner. Beginning in 2029, China’s population will contract by around 5 million

people per year, making China a much older society before it reaches high-income

status (Mitter, 2021). With the elderly population (older than 65 years) jumping

from only 8%–9% during 2010–2015 to an estimated 14% in 2025, China’s spend-

ing on elderly care and social insurance is expected to increase dramatical y, re-

quiring further reform of the pension system, the UBS report said.

23 »The party has been increasing its influence over private firms in subtler ways. Under a

strategy referred to as “party building”, firms are asked to launch party committees, which

can opine on whether a corporate decision is in line with government policy. The number of

committees in publicly-traded but privately-controlled companies is still low. According to a

survey of 1,378 Chinese listed firms by Plenum, a consultancy, of the 61% that were privately

controlled only 11.5% had party-building clauses in their charters compared with 90% of

state-owned firms« (The Economist, 2020, Nov. 14, 55).

24 Mr Xi's relationship with China's tycoons has always been troubled. When he became

president in 2013, he inherited a corporate system replete with fraud, patchy regulation and

surging debt. After the success of an anti-corruption campaign that mostly targeted officials,

Mr Xi took aim at a group of businessmen who were ploughing huge sums into risky overseas

investments. Officials argued that many of these acquisitions were thinly disguised means

to divert capital out of China. Many of the businessmen who once fancied themselves as a

‘Chinese Warren Buffett’ are in prison or worse (The Economist, 2020, 14 Nov., 54)

30

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Huge inequalities are becoming a major problem China will face in the future

since it is turning into »one of the most unequal countries in the world« (European

Parliament, 2018, 21).

China’s Gini coefficient is around 0.47. By comparison, that of the United States is

around 0.41. Chinese leaders have insisted a number of times that inequality above

0.40 is potential y destabilizing. It has become the Chinese system’s Achil es’ heel, be-

lying the government’s nominal y socialist tenets and undermining the implicit con-

tract between the rulers and the ruled. Inequality erodes the trust that Confucius

thought even more essential for good government than food (or, in today’s terms,

material prosperity (Milanovic, 2021).

Inequality not only relates to income/wealth but to education and skil s in general.

»The biggest obstacle to China’s rise is poorly educated rural children«, claims

The Economist (2021, 23 January, 66–67) which is a real problem since up to

»two thirds of Chinese children are rural and 70% of the Chinese workforce is

unskilled«. Not surprisingly Rozelle et al. (2020) predict »mass unemployment,

social unrest and perhaps a crash that would lead to huge economic shocks around

the world (see The Economist, 23 January, 67).

Politics could also become an obstacle if, as is happening now, by prioritising au-

thoritarianism and political repression over reform. It could slow down all ambi-

tious plans (2021–2025, and Made in China 2035) for economic modernisation.

»The biggest obstacle China will face is not the hostility of the United States or

other adversaries. It is instead China’s own authoritarian turn/…/ but it doesn’t

mean that it couldn’t return to this earlier trajectory« claims History and Politics

of Modern China Professor Mitter at Oxford (2021). In the very long run, China

cannot avoid internal political reforms, the democratisation of society. Despite

very strong support for the Communist Party now25, people will gradual y de-

mand greater political freedom, equal minority rights, freedom of speech; in

short, more human rights. If China wants to become a leading power in the world,

its reputation must move parallel to that, meaning to become more democratic,

to be global y appreciated. Closing the gap between economics and politics/de-

mocracy will become more and more a problem. This will not happen overnight,

as some in the West, under an il usion, would expect, but more slowly, according

to their Confucianism philosophy, in a Chinese way. There is certainly not a one

size fits al democracy for all societies around the world. Kissinger was thus right,

claiming that »any attempt to understand China’s twentieth century diplomacy or

its twenty-first century world – must begin – even at the cost of some over simpli-

25 See footnote 5.

China in the Global Economy

31

fications - with a basic appreciation of the traditional context« (2011). Too rapid

changes in a large multi-ethnic society could become provide a fruitful basis for

political, even military, conflicts. The third part of Rodrik’s trilemma, democracy

(other two being globalisation and sovereignty) has to be taken on board. Stil ,

democracy cannot be exported, or imposed from the outside, it cannot be im-

ported but must grow from the inside, when the conditions are ripe and allow it.

Exporting democracy is a pure il usion. The policy President Sadat used, while

discussing the opening of the Suez Canal which Israel had demanded after the

aggression, seems very appropriate in this regard. He told Kissinger; we can do it,

if you stopped demanding it. There has to be a balance between international pres-

sure and the internal drivers of democratisation. »Experience has shown«, stated

the confident Kissinger (2011) »that to seek to impose human rights, dignity and

popular participation by confrontation is likely to be self-defeating, especial y in

a country with such a historical vision of itself as China«. This might may sound

hypocritical in view of America’s long history of systematical y breaching the hu-

man rights of foreign and domestic populations while continuing with these prac-

tices in the present (Kundnani, 2014).

All of this and given the decline in exports due to the USA’s protectionist measures

(a trade war, becoming ever more a technology war) could substantial y inflate

growth rates and create a big problem for China’s economy in the future. Yet, »it

is highly unlikely that disruptions to bilateral US–China trade will have a large

impact on overall Chinese growth rates. Growth in China is now driven mainly by

domestic factors and the US accounts only for about one fifth of Chinese foreign

trade« (European Parliament, 2018, 44). At the same time, China has already initi-

ated efforts to replace the decline in its exports by promoting domestic consump-

tion and regional y reorienting some of its exports.

As China’s industrial strategy becomes more sophisticated, plans such as »Made

in China 2025«26 launched in 2015 will increasingly channel overseas investments

as a means to achieve clear policy goals in the ‘new strategic industries’ defined in

Beijing. China’s new growth model (‘the new normal’) that is now being imple-

mented promotes more sustainable (and less costly) economic growth that puts

greater emphasis on private consumption and innovation as the new drivers of

the Chinese economy. Consumption and services respectively contributed about

76% and 60% of GDP growth in 2018 (McKinsey, 2019a). Implementing a new

growth model that sustains healthy economic growth could prove challenging un-

less China is able to effectively implement new economic reforms. Many analysts

warn that, without such reforms, China could face a period of stagnant economic

26 For more, see ch. 2.5.

32

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

growth and living standards, a condition economists refer to as the »middle-in-

come trap« (see Morrison, 2018).

President Xi’s report to the 19th Party Congress delivered in November 2017 stated

that China would work to become a »moderately prosperous society in all respects«

by 205027. Major goals include boosting living standards for poor and rural people,

addressing the income disparities (e.g. rich–poor and urban–rural), making private

consumption the driver of the economy, improving services, reducing pol ution,

promoting innovation and economic modernisation, and improving overall liv-

ing standards. He stated that »We will work faster to build China into a manufac-

turer of quality and develop advanced manufacturing, promoting further integra-

tion of the internet, big data, and artificial intelligence with the real economy, and

foster new growth areas and drivers of growth in medium-high end consumption,

innovation-driven development, the green and low-carbon economy, the sharing

economy, modern supply chains, and human capital services. We will support tra-

ditional industries in upgrading themselves and accelerate development of mod-

ern service industries to elevate them to international standards. We will move

Chinese industries up to the medium-high end of the global value chain, and foster

a number of world-class advanced manufacturing clusters« (Morrison, 2018, 45).

To date, such plans have been fairly well realised. The present trade war can hurt,

as protectionism does, also those who initiate it. Higher tariffs might affect firms

in the USA, too, given that 77% of China’s exports to the USA are intermedi-

ate and capital goods used to produce finished goods. The tariffs may therefore

increase the cost of US production, raising prices for consumers or lowering the

profits of US companies that make final goods28 (Woetzel et al., 2018). The latest

report by the Rhodium Group estimates that if 25% tariffs were expanded to

cover all two-way trade the USA would forgo USD 190 billion in GDP annu-

ally by 2025. In the investment channel, if decoupling leads to the sale of half

of America’s FDI stock in China, US investors would lose USD 25 billion per

year in capital gains, and models point to one-off GDP losses of up to USD 500

billion. Reduced FDI from China into the USA would add to the costs and,

by flowing elsewhere instead, likely benefit America’s competitors. If future

flows from lost Chinese tourism and education spending are at half their pre-

COVID levels, the USA would lose between USD 15 billion and USD 30 billion

per year in services trade exports (see Rosen et al., 2021).

27

New development plan 2021–2025 stated that China »would basical y achieve socialist

modernization« by 2035 in order to final y »reach the level of moderately developed countries«

(Babones, 2021).

28 More on the costs of trade war in Svetličič (2020c).



China in the Global Economy

33

In addition, American firms are highly dependent on GVCs, which a trade war

could threaten, although they are hard to break without serious consequences for

all parties. »Beijing could slam every corner of the American economy, from oil

refineries to wind turbines to jet engines, by banning exports of crucial minerals.

/.../ China supplies about 80 per cent of the rare-earth elements imported to the

United States which are used in oil refining, batteries, consumer electronics, de-

fence29 and more«, claim Johnson and Groll (2019). The US defence30 industry

uses rare earth, from sonar and communications equipment through to mis-

siles and jet engines. Each Apple iPhone relies on multiple rare earth elements.

Neodymium is used to make the tiny, yet powerful magnets that allow iPhone

speakers to function. Europium is used in trace amounts to produce the red col-

ours on screens, and cerium is used to polish phones during the manufacturing

process (https://chinapower.csis.org/china-rare-earths/#toc-2).

Figure 14: World earth mining production

Source: CSIS, 2020.

29 Every advanced weapon in the US arsenal –from Tomahawk missiles to the F-35 fighter jet

to Aegis-equipped destroyers and cruisers and everything in between – is absolutely reliant

on components made using rare-earth elements, including critical items such as permanent

magnets and specialised alloys, as well as smart bombs and guided munitions that are almost

exclusively made in China (Johnson & Seligman, 2019).

30 Every advanced weapon in the US arsenal – from Tomahawk missiles to the F-35 fighter jet

to Aegis-equipped destroyers and cruisers and everything in between – is absolutely reliant

on components made using rare-earth elements, including critical items such as permanent

magnets and specialised alloys, as well as smart bombs and guided munitions that are almost

exclusively made in China (Johnson & Seligman, 2019).



34

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

China enjoys an almost monopoly position in rare earth production.

Figure 15: Reliance on rare earth imports from China (based on volume, not value)

Source: CSIS, 2020.

As much as 80% of the antibiotics consumed in the USA is imported from

China31.»The irony of the trade war is that many of America’s demands would

propel China’s ascent and the beneficiaries would be third parties.32 Opening

more industries to competition would boost the private sector and productivity.

Curbing subsidies would ease pressure on the public purse and lower excess pro-

duction. Better protection of intellectual property would stimulate innovation«

(The Economist, 2019, Febr. 23., 48). This would also stimulate China to become

more self-sufficient in the strategic industries and could derail the USA’s domi-

nance of the global chip market, for instance.

Nevertheless, too optimistic expectations may be naïve; namely, China facing a lot

of transformation challenges, the middle-income countries trap, slowing growth

rates which are, according to theories, linked to higher development stages. In

2018, its growth rate was the lowest in a decade (6.6%) and was predicted to fall to

31 95% ibuprofen, 91% hydrocortisone, 70% acetaminophen, 40% penicillin (Taylor, 2020).

32 According to Robinson and Thierfelder (2019, 1) the US-China trade war will leave both

countries worse off (although the magnitude of these losses is small) and the »winners« are the

third countries that benefit from the shifts in markets and world prices. Their model projects

that in the next 5 years and beyond, US and Chinese industries will adjust, diverting trade to

other markets, and other countries will divert their exports to US and Chinese markets to fill

the void. US agriculture and manufacturing will lose, while Chinese manufacturing will gain,

expanding production and trade.



China in the Global Economy

35

5.5% by 2023 according to the IMF. The pandemic has added to slowing of growth

rates, but China has recovered much better and faster than any other country,

already resuming growth in 2020 (May–June) of 4.9% (official data).

The main gaps between China and the high-income economies at a similar de-

velopment stage are that China has a relatively small share of employment in the

secondary and tertiary sectors, a low proportion of value added in government

services, and a high investment rate. To overcome these differences, the Chinese

government must gradual y promote reforms of government functions, from de-

velopment to services. With increases in China’s income level and economic re-

structuring, the government needs to shift the focus from project construction to

public services and public administration.

In short: many problems call for new policies (also see Ch. 2.5. on technologi-

cal transformation). Fast development, which cannot last forever, brings huge

changes to the new coming powers, including rising wages and transformation

of the economy.

Figure 16: China has lifted wages and increased domestic demand (average real wage

index for emerging G20 countries, 2008–2017)

Source: Polaski, 2020, 24 (based on ILO data).

Around the world, manufacturing costs are converging when not only wages, but

also productivity, energy costs and exchange rates are considered. The competi-

tiveness of China’s exports is thereby being eroded.



36

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 17: Manufacturing cost index33; US=100 (blue 2001, red 2018)

Source: The Economist, 2019, July 13, 4.

China could also encounter a real estate property bubble. The old drivers of its

growth are running out of steam. In past decades, China benefited from the rapid

structural transformation from agriculture to manufacturing and services, high

levels of investment, demographic dividends, and a speedy rural–urban migra-

tion. This led the World Bank (2019, xviii)34 to propose six strategic choices facing

China’s policymakers who are to promote the three Ds and determine the coun-

try’s future growth performance:

• Striking the right balance with the three drivers of growth

• Adjusting the balance between the state and the market

• Reshaping industrial policies

• Attaining mutual y beneficial international trade and investment relations

with global partners

• Balancing supply-side reforms with demand-side reforms

• Preparing for the future impact of technological changes.

33 Incorporates wages, productivity, energy costs and exchange rates.

34 World Bank Group & Development Research Centre of the State Council, People’s Republic

of China (2019, xviii).





China in the Global Economy

37

2.4. CHINA INWARD AND OUTWARD FOREIGN DIRECT

INVESTMENT TRENDS

2.4.1. China as global investor

China has been gradual y becoming a major host country for foreign direct in-

vestments (FDI) and in recent years also a major investor abroad. A realistic as-

sessment of bilateral Slovenia–China investment cooperation can only be made

if we place such cooperation in the context of global FDI trends in and out of

China. This is the aim of this chapter. In this way we can evaluate the trends in

bilateral FDI flows and establish whether they are in line with the general trends.

The modest bilateral flows of FDI between China and Slovenia on one side and

the very rapid expansion of FDI in and out of China (being the second-largest FDI

recipient) demonstrate that Chinese FDI in Slovenia and Slovenian FDI in China

are considerably below potential.

Figure 18: FDI inflows by selected major host economies, 2018 and 2019(USD billion)

Source: UNCTAD, 2020, 12.

Chinese firms do not have any longer tradition in investing abroad, but they have

become the second-largest investor abroad and a very important investor in the EU.

Figure 19: FDI outflows by selected top home economies, 2018 and 2019 (USD billion)

Source: UNCTAD, 2020, 15.





38

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The EU’s level of investment in China has been growing exponential y since

2001. Investments by Chinese firms in the EU began to grow faster only after

the GR, although they have slowed recently. In 2017, Chinese investment flows

into the European Union stood were almost five times bigger than European

investments in China (EU 2018b). Chinese outbound investments in the EU

continued to decline in 2018. They almost exclusively took the form of M&A

(see Figure 35). Inward investment flows by Chinese firms in the EU already

quite substantial y surpassed those made by Europe’s firms in China in 2013,

yet the FDI trend has started to change recently and the stock of inbound and

outbound FDI has levelled out. The negative FDI EU–China balance has thereby

nearly been balanced due to the almost equal flows of both types of FDI in 2017.

The stock balance is still positive overall (EUR 116.3 billion in 2018).

Figure 20: EU (27)–China foreign direct investment (stock in EUR billion)

Source: European Commission, 2020f.

Flows of inbound and outbound Chinese investments abroad were almost in

balance between 2014 and 2019, where 2019 is an exception because of the sub-

stantial fall in outward FDI (from USD 143,040 billion to USD 117,120 billion;

UNCTAD, 2020, 239). Such a balance is not seen in the EU; European firms have

been investing in China much more35 than China in the EU.

35 Recently, such flows have been slowing down partly in reaction to the any restrictions stil

on M&A there (for example in transport and infrastructure, entertainment or energy and

power generation; see details in Hanemann and Huotari, 2019, 14). They are also distorted

by Chinese ownership restrictions that force foreign companies into minority joint ventures.





China in the Global Economy

39

2.4.2. Chinese inward FDI

In 1978, China again opened itself up to foreign investment and within two dec-

ades it had become the biggest recipient of FDI. A gradual and prudent approach

has been applied in the process of liberalisation in this regard. When market insti-

tutions were not ful y in place in the 1980s and 1990s, China experimented with

opening up to foreign investment in selected coastal cities and special economic

zones/industrial parks with a focus on attracting export-oriented manufacturing

FDI (see World Bank, 2020). Later, FDI became a real y very important instru-

ment for the internationalisation of the Chinese economy, first inward and later

outward. FDI inflows continued to rise between 2018 and 2019, from USD 138

billion to USD 141 billion (+2%). The liberalisation plans, the rapid development

of the high-tech sector, and establishment of free-trade zones facilitated these

flows.

Figure 21: FDI inflow to mainland China by source country (USD billion)

Source: European Parliament, 2020b, 27.

The composition of the biggest investors in China has not changed much. In terms

of shares, Hong Kong has been and is ever increasing it share in total inward FDI in

China. Inflows from the USA and Europe have declined, but regional investment

has continued to increase as flows from ASEAN countries have grown. MNEs

from the Republic of Korea and Japan have continued their strategic adjustment

in China, shifting some labour-intensive production abroad while investing in

high-end production activities (UNCTAD, 2020, 42).



40

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 22: FDI inflow into mainland China by source country (in %)

Source: European Parliament, 2020b, 27.

The increasing inflows are, apart from the large market potential and high growth

rates, also a result of the improving investment climate. China was ranked 31st out

of 190 countries in the World Bank’s 2020 Doing Business report, a big improvement over 2019 when it was ranked 46th out of 190. China was one of the top 10

economies to improve the most between the 2019 and 2020 reports. According

to Nordea (2020), this progress reflects improvements in a wide array of subcom-

ponents, ranging from procedures for starting a business to measures to improve

electricity access and obtain construction permits. The country demonstrated re-

form agendas that aim to improve the business regulatory environment in the

country over the course of several years. These reforms largely focus on increasing

the efficiency of business processes, such as tax cuts, trade with tariff cuts, and

reduced barriers to foreign investors. In order to attract more foreign investment,

the country has introduced mechanisms to improve the delivery of major foreign

investment projects, reduce import tariffs, streamline customs clearance, and es-

tablish an online filing system to regulate FDI.

With a wealth of employees and potential partners eager to learn and evolve, the

country is a base for low-cost production, making it an attractive market for inves-

tors. Nevertheless, certain factors can hinder investments, such as China’s lack of

transparency, the legal uncertainty, low level of protection of intellectual property

rights, and corruption or protectionist measures which favour local businesses. FDI

inflows to the high-tech sector have been rising significantly and currently account

for almost one-third of total inflows. Foreign investors started to tap into new tech-

nological achievements of the Chinese economy establishing also joint research and

development facilities while American and European universities started first to de-

veloping joint programs with the local ones and later starting their own universities,

because demand for better education for global expansion was growing so rapidly.

China in the Global Economy

41

New Law on Foreign Investments

Such development is also reflected in adjustments to the legislation. A new Law

on Foreign Investments was adopted in March 2019, and has been in force since 1

January 2020. It seeks to address common complaints made by foreign businesses

and governments. The Law specifical y prohibits the government and government

officials from forcing the transfer of technology, while technology cooperation

based on free will and business rules is encouraged by the state. Indeed, Article

22 states the State shall protect the intellectual property rights of foreign investors

and foreign-funded enterprises. The Law also gives foreign investors the possibil-

ity to receive the same treatment when they apply for licences (Article 30) and

participate in public procurement (Article 16). The competent departments for

commerce (Ministry of Commerce) and for investment (National Development

and Reform Commission) are delegated major responsibility to promote, protect and manage foreign investment. In addition, on 23 June 2020, the National

Development and Reform Commission (NDRC) and the Ministry of Commerce

(MOF) jointly issued two »negative lists« (on Foreign Investment and Free Trade

Zone Special Administrative Measures) and a draft edition of the Catalogue of Encouraged Industries for Foreign Investment. Compared with the 2019 edition, the proposed 2020 Foreign Investment encouraged catalogue has been fur-

ther lengthened, with 125 new industries added and 76 previously listed indus-

tries amended. There are no major changes compared to the 2019 catalogue. It

welcomes more FDI in the following three main areas in China: high-end produc-

tion; production-oriented service industries; China’s central, western, and north

eastern provinces (see Nordea, 2020). It is a part of the Chinese ambitions to be-

come technological leader in the world and exploiting to such an end all available

opportunities.

The Law simplifies the administrative procedures for FDI (e.g., permissions, li-

censing) and provides for the establishment of bilateral or multilateral coopera-

tive institutions to enhance the international exchange of best practices on FDI,

all of which reflect the principles of the WTO’s Joint Ministerial Statement on

Investment Facilitation for Development. It grants foreign investors pre-establishment national treatment, with Special Management Measures for Foreign

Investment Access (a negative list) as the only exception.

According to Zheng (2019), China’s investment law endeavours to establish

an open market to attract and promote the free flow of resources, with Pilot

Free Trade Zones serving as experimental precursors. Three features are worth

noting:

• Investment facilitation is the first step in improving the domestic investment

environment. The Law provides for a transparent law- and standard-setting

42

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

process, allowing the participation of foreign investors; mandates a system

enabling consultations on all investment law and policy matters; simplifies

administrative procedures for FDI (e.g., permissions, licensing), and provi-

des for the establishment of bilateral or multilateral cooperative institutions

to enhance the international exchange of best practices regarding FDI, all of

which reflect the principles of the WTO’s Joint Ministerial Statement on In-

vestment Facilitation for Development. This is supported by China’s general

policy to streamline administrative procedures, delegate powers and improve

regulations and services. As investment facilitation does not address market

access, standards of treatment and dispute settlement, it does not impinge on

the country’s sovereignty and is therefore quite a low-hanging fruit for enhan-

cing the doing-business environment.

• The Law grants foreign investors pre-establishment national treatment, with

Special Management Measures for Foreign Investment Access (a negative list)

as the only exception. This mechanism substantial y alters China’s FDI regula-

tory regime. The negative list is the result of the Pilot Free Trade Zones expe-

riment underway since 2013 and the exercise of evaluating the potential risks

of an open investment market, while responding to foreign investors’ concerns

regarding particular issues such as forced local partners. In its latest version,

the list (which replaces China’s long-standing Catalogue of Industry Guidance

for Foreign Investment) lays out the market-opening timelines for the auto-

mobile manufacturing and finance industries, and eliminates the shareholding

ratio requirements for sectors like the power grid and railway network infra-

structure, as well as aircraft design, manufacture and maintenance. Although

the list will continue to become shorter (thereby opening up more industries),

its current implementation is insufficient since the list adopts China’s Indu-

strial Classification, which differs from international practices and might ca-

use confusion for foreign investors; the listed special management measures

clearly fail to refer to specific regulatory rules and thus lack transparency; and

once an investment is established, doing business in certain industries remains

subject to licences or permissions. A more transparent, precise and integrated

regulatory system is needed so that foreign investors can truly enjoy national

treatment.

• Regarding investment protection, however, the law and policymakers are too

eager to please foreign investors partly because they stretch to address issues

not properly included in an FDI law. Concerning the protection of intellec-

tual property rights, the Law explicitly prohibits government officials from

forcing intellectual property transfers or revealing to a third party foreign in-

vestors’ business secrets acquired while exercising their authority. However,

this issue might be better addressed by amending the intellectual property

law and related mechanisms. The Law also provides foreign affiliates with a

complaint mechanism, to facilitate communication with foreign investors in





China in the Global Economy

43

terms of policy coordination or public bodies’ tortious acts. Stil , enforceable

procedures are absent as are explanations about the relationship between the

complaint mechanism and the existing administrative procedures. The Law

touches upon issues outside of its scope and is missing enforceable mecha-

nisms. This may arouse the suspicion rather than boost the trust of foreign

investors.

2.4.3. Chinese outward FDI

Parallel to its Going Global strategy36, China started to invest abroad. This was accelerated after the country entered the WTO. Recently, China has become

the second-biggest investor abroad, although the trend has slowed in the last

3 years. Therefore, it is not surprising that many countries have started to fear

such a rapid expansion, and fear becoming dependent on China, not only in

trade but also in FDI. Such fears are only one factor contributing to the 18%

decrease of Chinese investment abroad in 2019 to reach USD 117 billion, and

the 28% decline in investment outflows from Hong Kong to China to reach USD

59 billion. Investment from China, the fourth-largest investor abroad, declined

for the third consecutive year from having peaked in 2016. Chinese M&A pur-

chases global y decreased to a record low for the past 10 years. This decline has

been attributed to the continuing restrictions on outward investment, geopo-

litical tensions and the challenging environment in terms of global trade and

investment policy (UNCTAD, 2020, 45).

The EU has become one of the favourite destinations for Chinese outbound

FDI, following the strategy of Chinese companies to gain foreign technology/

know how. The majority of such investments are the technology-seeking type,

particularly in the form of mergers and acquisitions as the prevailing form of

such FDI.

36 It started in 1999 and in fact coincides with China’s 2001 admission to the WTO. Initial y, it was called Going Global 1.0 and has now been re-invigorated as Going Global 2.0 »aiming to address«, according to official sources, »1.0’s failings and ensure firms invested abroad more

wisely, with greater concern for local sensibilities and China’s image. /…/ with the Belt and

Road as a major geopolitical expression of Going Global 2.0. Hedging against US influence at

its front door, the strategy focuses south and west, seeking to build up infrastructure, trade,

investment and human linkages across Eurasia Belt and Road and Capacity Cooperation /…/

Going Global 2.0 is the policy rubric behind China’s claims to now be the ‘champion of free

trade’ (China policy, 2017).



44

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 23: Annual value of completed Chinese FDI transactions in the EU-28, EUR

billion

Source: Kratz et al. 2020, Figure 2.

The decline in such outward FDI in 2019 was so substantial (33% lower com-

pared to 2018) that the total value of flows fell back to the 2013 level. This drop

is in line with the downward trajectory of China’s global outbound investment

seen since 2016. Such a fall is a result of two sets of factors. First, to the growing

regulatory scrutiny in host economies and second to the continuing capital con-

trols and tightening of liquidity in China. Many restrictions on such investment

in developed countries were introduced once they started to fear such Chinese

investment reaching high levels of this magnitude. Mergers and acquisitions

were the main target of such restrictions, largely based on security arguments.

A political and regulatory backlash against Chinese capital around the globe

has started. New »screening regimes37, which have raised the bar for Chinese

takeovers, have been introduced in the USA and the EU. Several European gov-

ernments updated or established their FDI screening regimes in 2017 and 2018.

This strengthening of review mechanisms has already impacted Chinese invest-

ment patterns in 2018, including the first ever instance of a blocked Chinese

acquisition in Europe and several delayed transactions. A second explanation

for the slowdown is due to Beijing-imposed administrative restrictions mak-

ing it more difficult for China’s firms to raise funding and obtain approval for

overseas investment in order to curb the ‘irrational’ investments abroad. They

37 For more on EU regulations regarding Chinese FDI, see Ch. 2.7.4.



China in the Global Economy

45

even pressure highly leveraged firms to sell off overseas assets amidst a broader

clean-up of the financial sector, thus drying out financing channels for overseas

investments. The substantial drop does not mean that Chinese companies have

lost their appetite for the global economy (Kratz et al., 2010; Hanemann et al.

2019; Grieger, 2020b, 5).

In terms of the country allocation of Chinese FDI in the EU, the ‘Big Three’

EU economies have been receiving the lion’s share of investment since 2010

(53%). The United Kingdom (UK) (EUR 4.2 billion), Germany (EUR 2.1 bil-

lion) and France (EUR 1.6 billion), but their share declined from 71% in 2017

to 45% in 2018. It further dropped in 2019 to 34.6% of total investment in 2019.

Newcomers made it to the top 5 list, propping up the relative shares of Northern

Europe and Belgium, the Netherlands and Luxembourg (Benelux) in total in-

vestment. This was due mainly to a few large M&A deals, including Anta’s ac-

quisition of Amer for EUR 4.6 billion (which made Finland the top recipient

country for Chinese investment in 2019) and China Evergrandeux in NEVS for

EUR 830 million (making Sweden the third-biggest recipient country in 2019).

Investment in Ireland also increased and is set to grow further as two large

greenfield factories by Wuxi Biologics get underway in the next few years (see

Kratz et al., 2020).

Figure 24: Chinese FDI in the EU-28 by country group, 2010–2019 (in %)

Source: Kratz et al., 2020, 10.

Nevertheless, the UK and Germany still lead by far in terms of the cumulative

value of Chinese FDI in the EU.



46

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 25: Cumulative value of Chinese FDI transactions in the EU by country, 2000–

2019, (EUR billion)

Source: Kratz et al. 2020, 11.

Eastern European member states, in spite of the 17+1 initiative, have not at-

tracted any substantial Chinese FDI. The region is still failing to attract any

noteworthy M&A activity from Chinese investors, and accounts for a mere 1.5%

of all Chinese investment in the EU. Slovenia and Cyprus have attracted the

least Chinese FDI.





China in the Global Economy

47

2.5. TECHNOLOGICAL TRANSFORMATION OF THE CHINESE

ECONOMY

In designing future bilateral cooperation, one must also look at how the Chinese

economy has transformed in the area of science and technology. One reason for

this is being that China is undergoing huge technological changes which might

decisively influence its international economic relations and thus also Slovenia.

Technological development is attaining the most important role in China’s devel-

opment strategy today, moving from low-end manufacturing to a high-technol-

ogy powerhouse. Namely, »China’s old drivers of growth are running out of steam.

In the past decades, China benefited from a rapid structural transformation from

agriculture to manufacturing and services, high levels of investments, demo-

graphic dividends, and rapid rural–urban migration. China can no longer rely

on those old drivers of growth« (World Bank, 2019, xviii). China is transforming

from a »big processing country« into »a strong processing country« untill 2025,

and by 2049 the »world’s leading producer« (Made in China, as planned for the

100th anniversary of the PRC in 2049). It may be expected that China will emerge

as a leader in many technological y propulsive activities. Losing the race for world

leadership in technology might well be the final nail in the coffin for US hegem-

ony, and an ideal opportunity for China to assume the mantle (Magri, 2019, 12),

»because China now challenges European (and US) companies in virtual y every

high-technology sector« (see Ortega, in Hobbs, 2020, 10).

It is not surprising that a debate on whether a ‘tech Cold War’ between the USA

and China is imminent and all of its negative long-term implications has com-

menced. It is not new because »every empire has been connected to some form of

technological superiority. The British Empire was made possible by three innova-

tions: the steamboat, the machine gun, and quinine, a technological trident that

allowed a small island in the Atlantic to rule over one-quarter of the Earth’s surface

20 per cent of the global population at that time« (Torreblanca (2021). »The new battle field today is; information technology: semiconductors, data, 5G mobile

networks, internet standards, AI and quantum computing (The Economist, 2020,

21 Nov., 9). »We are not only talking about cyber-attacks and disinformation but

also about a competition for world hegemony between the US and China that will

last throughout the twenty-first century and whose result will depend on control

over data clouds, semiconductor production, artificial intelligence, 5G and 6G

network security, and quantum computing« (Torreblanca, 2021).

Such a bifurcated technology world is likely to innovate more slowly, at least in the

short run. It will also be expensive. A report by Deutsche Bank written by Apjit Wali, Head of Tech Strategy, estimates the costs of a tech war at over USD 3.5 trillion over

48

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

the next 5 years38. If there is any upside, it might arise from similar dynamics to the

USA–USSR Cold War, where a ramping up in defence spending and the space race

could translate into a leap in tech investment this century (Financial Times, 2020).

It is un clear which side of such a trade-off would prevail, the costs or the benefits.

Emphasis on the role of science and technology is no that new in China’s de-

velopment strategies. In the post-1978 era, science and technology was seen as

one of the ‘four modernisations’. Technological progress has mainly been pursued

through FDI based on the ‘market for technology’ principle. Since such a model,

despite some tangible gains, has failed to deliver expected progress in China

domestic innovative capacity, in 2005 the Chinese administration issued the

Medium and Long-term National Plan for Science and Technology Development

(MLNP). This plan stressed the innovation-driven development and prioritised

specific areas for improvement. That course has been maintained and strength-

ened since Xi Jinping took over power in China in 2011. The trade war with the

USA has further accelerated the cal s for on ‘technological autonomy’ and ‘decou-

pling’. China’s 12th and 13th Four-Year Plans (FYPs) clearly showed restructuring

of the economy must be treated as an imperative for China’s future development.

To achieve this, the 13th FYP advocated a bigger emphasis on ‘innovation-led

growth’ (based on Paszak, 2020).

Launched in 2015, Made in China 2025 is an attempt to create global y competi-

tive companies in the core sectors of the economy and to reduce reliance on for-

eign technologies. The strategy identifies ten sectors as being crucial for future de-

velopment.39 The initiative outlines in blunt terms China’s ambitions to dominate

38 The figure of USD 3.5 trillion comes from a USD 400 billion reduction a year in domestic-

end demand from China and USD 100 billion a year as a “Tech Wal ” creates extra costs

for companies dealing with rival Internet platforms, operating systems, and communications

and payment networks. A further USD 1 trillion in costs would come from rebuilding and

reconfiguring the supply chain, mainly falling on “final goods manufacturers” that currently

use China as a manufacturing base.

39 They are:

1. the advanced information technology industry,

2. machinery and robotics,

3. aerospace and aeronautic equipment,

4. marine engineering equipment and high-tech ships,

5. advanced rail transport equipment,

6. energy saving vehicles and renewable energy,

7. agricultural machinery and equipment,

8. new materials,

9. biopharma and

10. high-performance medical products (see Made in China, 2025)

China in the Global Economy

49

these sectors. As of 2015, Chinese factories were already producing 28% of the world’s cars, 41% of the ships, more than 60% of the TVs, and a staggering 90% of

the world’s mobile phones. Indeed, Apple’s Elk Grove plant is now an AppleCare call centre (Hel berg, 2020).

President Xi’s report to the 19th Party Congress in November 2017 stated that:

»We will work faster to build China into a manufacturer of quality and develop

advanced manufacturing, promote further integration of the internet, big data,

and artificial intelligence with the real economy, and foster new growth areas and

drivers of growth in medium-high end consumption, innovation-driven devel-

opment, the green40 and low-carbon economy41, the sharing economy, modern

supply chains, and human capital services. We will support traditional industries

in upgrading them and accelerate development of modern service industries to el-

evate them to international standards. We will move Chinese industries up to the

medium-high end of the global value chain, and foster a number of world-class

advanced manufacturing clusters« (Morrison, 2018, 45).

The »Made in China 2025« initiative bluntly outlines China’s ambitions for dom-

inance in artificial intelligence (AI), robotics42, aerospace equipment and biop-

harmaceuticals – high-tech industries that represent the global economy’s future.

The Plan outlines a three-stage strategy of building the world’s leading industry

by 2050. During the first stage (by 2020), it is expected that AI will become an

important driver of economic growth. The next stage (by 2025) includes the dis-

semination of AI solutions to numerous areas and industries, such as digitalised

industry, high-end healthcare, smart cities, smart agriculture, and national de-

fence. The third and final stage envisages China as the global leader of the world’s

AI industry with the most competitive enterprises, top-notch scientific and re-

search capacity and most sophisticated talent pool. By this point, AI is widely

employed in manufacturing, services, military and public systems. The strategy

40 The approach to making cities sustainable has been articulated as ‘ecological civilization-

building’, vision for socialist sustainability written into the PRC Constitution in 2018 (see

Krischer, et al., 2020).

41 China plan the carbon emission to be significantly reduced through 2035 by setting a stricter environmental protection and carbon emission standard in the next five years. And accordingly, the authorities will increase the public expenditure on environmental protection equip-

ment etc. (see Dong 2020).

42 China intensified the instal ation of robots which rose by 59% in 2017, more than in America and Europe combined in order to automatise its manufacturing industry (The Economist,

2019, Jan. 5, 49). In such a way, it could soon upgrade its 23rd position in the world regarding the instal ation of robots per 100,000 employees (see https://ifr.org/ifr-press-releases/news/

robot-density-rises-global y).



50

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

pursues ‘indigenous innovations’ and ‘self-sufficiency’, achievable by increasing

Chinese suppliers’ market share for »basic core components and important basic

materials« to 70%, with 40% of mobile phone chips, 70% of industrial robots and

80% of renewable energy equipment to be manufactured domestical y by 2025

(see Paszak, 2019, 14). Although specific details are scarce, the theory appears to

prioritise domestic consumption, markets, and companies in an effort to boost

China’s technological self-sufficiency after decades of export-led growth (Segal,

2020).

Following such strategies, China’s gross domestic expenditure on R&D (GERD)

grew between 2000 and 2017 from a modest USD 33 billion to USD 496 billion43.

It increased from 0.9% of GDP in 2000 to 2.2% in 2018 (Statista, 2020). In this

way, China became the biggest investor in R&D, next to the USA, and employs the

largest number of R&D personnel worldwide and accounts for 20% of total world

R&D expenditure. »It is also increasingly prominent in industries that intensively

use scientific and technological knowledge« (Godement, 2020).

While China has made bigger investments in R&D, it still lags behind the USA

when it comes to basic research. China’s share in basic research in the period 2000

to 2016 was just 5% of total R&D (17.7% in the USA, for instance) compared to

the 10% to 17% devoted to applied research (see Bučar & Arbeiter, 2019, 10–12).

All of the rest is experimental development. China’s world leadership in the quan-

tity of patents does not of course mean that it also leaders in the quality of patents.

Figure 26: Gross domestic expenditures on R&D PPP, 2000–2017

Source: Paszak, 2019, 17.

43 At the same time, American spending rose from USD 269 billion to USD 543 billion.



China in the Global Economy

51

This shift in policy has already produced tangible results. China’s innovation ca-

pabilities are rising rapidly, reducing the gap with the leading OECD countries.

In 2019, China surpassed the USA as the top source of international patent ap-

plications filed with the WIPO. With 58,990 applications filed in 2019 via the

WIPO’s Patent Cooperation Treaty (PCT) System, China ended the USA’s (57,840

applications in 2019) reign as the biggest user of the PCT System that helps in-

centivise and spread innovation – a position previously held by the USA every

year since the PCT began its operations in 1978. Applicants from China and the

Republic of Korea filed intensively for patents related to digital communication,

while those from the USA filed most in the field of computer technology. For

Japan, the top technology field was electrical machinery, and for Germany it was

transport. China holds first place in digital technology patent applications (16%

of the world’s total, and second place (14%) in computer technology, 2019; see

WIPO, 2020).

Domestic patent applications have been growing strongly since 2008 (Taube,

2020). The total number rose from 0.938 million to 3.536 million and more than

tripled over 6 years. Its share in global patents has doubled while those of the USA

and the EU were shrinking substantial y up until 2012 when the USA’s share in-

creased. Despite the extraordinary growth, this process almost certainly does not

precisely reflect China’s improving innovativeness or the effectiveness of its R&D

spending. Of all patents granted, just 19% were recognised as ‘inventions’, the rest

being split between ‘utility models’ (56%) and ‘designs’ (25%) (see Paszak, 2019).

Figure 27: Global patents (shares in global total)

Source: European Parliament 2018, Figure 23.



52

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

It is hence unsurprising that China has started to be a leading country in certain

key areas of the digital economy, like e-commerce44 and on-demand services, ar-

tificial intelligence, fintech, high-speed trains, renewable energy, and electric cars.

Companies such as Alibaba, Didi Chuxing, Huawei, and Tencent are operating

on the global technology frontier (World Bank, 2019, xviii). Huawei, for example,

filed more patents in the EU in 2017 than any European company. »More than

half of mobile phones are made in China, along with almost all printed circuit

boards, the guts of any device. Chinese factories install two-fifths of the world

semiconductors« (The Economist, 2018, Oct., 2355). Huawei, for example, filed

more patents in the EU in 2017 than any European company and remained the

top filer of PCT international applications in 2019 (WIPO, 2020) holding the

highest share of global 5G technology patents, followed by Samsung, Nokia and

Qualcomm according to Statista 2021 (March, 2nd).

Nevertheless, the USA is still home to the majority of large tech companies.

Figure 28: Location of the world’s biggest tech companies

Source: Hobbs, 2020, 38.

Stil , Chinese firms are catching up rapidly, like Huawei in 5G technology, for in-

stance. The race for 5G dominance will probably be the most important one over

the next 5 years (for more, see Ch. 2.7.5.).

44 By size of its market it overtook America's in 2013. China's mobile share of e-commerce is

90% versus 43% in America (The Economist, 2021, 10, 47).

China in the Global Economy

53

Another reflection of China’s achievements in science and technology sector is the

increasing number of scientific publications. China is second only to the USA in

the number of journal publications, while their quality, as measured by number of

citations, is continuously improving. Chinese universities are also becoming seri-

ous competitors of the best universities on the planet. China’s leading universities

are climbing up the global rankings and producing a bigger volume of high-qual-

ity research. »In 2013–16 Tsinghua university produced, according to Marginson

of Oxford University, more of the top 1% of the most highly cited papers in maths

and computing, and more than 10% of the most highly cited papers in STEM (sci-

ence, technology, engineering and maths) than any other university in the world«

(The Economist, 2018, Nov.17, 51).

The VUCA world and, recently the Covid 19 pandemic, have introduced new is-

sues. Countries, including China, have realised they are quite vulnerable in this

world and the need to become more resilient and less dependent has moved to the

top policy/strategy priorities because China’s reliance on foreign technology has yet

to decrease. China’s patents balance is still negative. Such an unfavourable inter-

national environment has driven Chinese policymakers to reassess the country’s

policy priorities and reaffirmed the importance of increasing self-reliance and fo-

cusing on domestic circulation (Zhu, 2020). Chinese elites are now aware that building a national and independent chip industry is necessary for both the economy and

national security. This new approach is supposed to replace the previous one mainly

based on imports of essential technologies, which has made the Chinese economy

dependent. Not being in control of crucial parts of important value chains inhib-

its the business development of key players in China’s modernisation drive, and

puts in jeopardy China’s economic growth and development trajectory as a whole.

Not surprisingly, in April 2016 President Xi warned that: »Internet core technol-

ogy is the greatest vital gate, and the fact that core technology is controlled by oth-

ers is our greatest hidden danger«. In November 2018, he added: »International y,

advanced technology and key technology is more and more difficult to obtain.

Unilateralism and trade protectionism have risen, forcing us to travel the road of

self-reliance«. The idea is to move away from the stage of »stimulating domestic

growth through international circulation« into the stage of dual circulation45 advocated by Xi Jinping as a mutual y interdependent, complementarity strategy aimed

at reaching technology autonomy and becoming an innovation power. Top of the

list of targets for the 14th FYP and National Economic and Social Development

(2021–25) and Long-Range Objectives through 2035 is to speed up the fostering of

the new development pattern »Double Development Dynamics«, where domestic

and foreign markets can complement each other, with the domestic market being

45 Coined by Wang Jian in 1988.

54

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

the mainstay. But turning inward might prove costly, warns The Economist (2020,

Nov.7, 49) because it may lead to less foreign technology flowing into China. At the

same time, it may stimulate domestic innovations and technological advancement.

President Xi’s report to the 19th Party Congress in November 2017 stated: »We will

work faster to build China into a manufacturer of quality and develop advanced

manufacturing, promote further integration of the internet, big data, and artificial

intelligence with the real economy, and foster new growth areas and drivers of

growth in medium-high end consumption, innovation-driven development, the

green and low-carbon economy, the sharing economy, modern supply chains, and

human capital services. We will support traditional industries in upgrading them-

selves and accelerate development of modern service industries to elevate them to

international standards. We will move Chinese industries up to the medium-high

end of the global value chain, and foster a number of world-class advanced manu-

facturing clusters« (Morrison, 2018, 45).

»Made in China 2025«, launched in 2015, fits well with the general dual circula-

tion strategy. The inward focus of the »dual circulation« strategy would create

a protective umbrel a for China in extreme scenarios and reduce the country’s

vulnerability in a confrontation scenario. Mr Xi is talking about the »unseen

changes in a hundred years sweeping the global order«. Here he is referring to the

combination of self-reliance and greater economic leverage over foreign countries

(see The Economist, 2020, Nov.7, 49). American restrictions on exports of critical

components, notably semiconductors, have put a spotlight on the gaps in China’s

industrial abilities. »Therefore, the new development plan 2001–2025 places max-

imum importance on reducing dependence on critical components, particularly

semiconductors, and sees it as a matter of national security (The Economist, 2020,

Nov. 7, 48). In this way, China is reducing its vulnerability and preparing itself for

the worst, given the highly unstable external environment before it. For instance,

in the semiconductor sector, China finds itself in a disadvantageous position due

to its reliance on other countries’ supply. »The fact that the U.S. government could

so easily hobble the world’s largest smartphone maker and 5G infrastructure supplier in less than one year is indicative of the vulnerability of China’s highly cen-

tralized high tech sector. China’s electronics industry relies on U.S., Taiwanese,

South Korean, and Japanese suppliers for many key components, but the most

strategic of strategic technologies is the microprocessor. And despite years of stra-

tegic investment, China has (so far) been unable to master the production of these

highly specialized but utterly ubiquitous computer chips46. The stunning success

46 Huawei, for instance, depends strongly on components imported from the USA, yet the USA

could also benefit from Huawei’s expansion in the long run.

China in the Global Economy

55

of U.S. efforts to hobble Huawei shows the fragility of Beijing’s highly centralized

tech sector« (Babones, 2020).

In the initial stages of its development, while opening up, China put great em-

phasis on importing knowledge in different ways, including imitating it. China

is therefore rightly accused of the forced transfer of knowledge47, of ‘stealing’ in-

tellectual property and technology from foreign companies48, although China’s

payments for US intellectual property »grew significantly, from $ 755 million in

1999 to $ 8.3 billion in 2017 – more than 11-fold. Even more interesting is the

fact that China’s royalty payments to the USA grew faster than China’s GDP (see

Santacreu et al. 2019, 2). However, such an imitation strategy is not unique for

China. The West is not innocent in this regard. Although protectionism is not

the optimal policy, almost no country in the world has not relied on protection-

ism, import substitution, in its initial development stages (see Chang, 2003) and

even today we are seeing the revival of neo-mercantilism49. Consequently, the ac-

cusations that China systematical y imitates and ‘steals’ IPRs and forces foreign

companies to transfer their technology to Chinese companies seems hypocritical

(more in Svetličič, 2020b). Imitation and »stealing foreign knowledge« has his-

torical y been the rule of the day. Such imitation activities (trade, foreign invest-

ment, licensing, international research col aboration, reverse engineering) by the

Chinese and other LDCs, now claimed to be problematic, in fact are and have

47 Meaning that foreign firms are pressed to hand over their technology when they form a

partnership with Chinese companies often as a precondition to be allowed to operate in China.

The problem certainly does exist, but the data suggest that its magnitude has diminished over

time.

48

According to some reports, Chinese IP theft has cost the USA USD 225 billion to USD 600 bil-

lion a year. Therefore, Huang; and Smith, fellows at the Carnegie Endowment for International

Peace (2019), conclude that the significance of this issue is exaggerated. For instance, in the

most recent US-China Business Council Member Survey, just 5% of respondents reported

having been asked to transfer technology to China, and this concern was ranked 24 out of the

top 27 challenges facing foreign companies.

49 The USA recently implemented several industrial policy instruments to strengthen its global

leadership in manufacturing, like A Framework for Revitalizing American Manufacturing

(2009), the United States Manufacturing Enhancement Act of 2010, the Advanced

Manufacturing Partnership (2011), A Manufacturing Renaissance: Four Goals for Economic

Growth (2011), A National Strategic Plan for Advanced Manufacturing (2012), A Strategy

for American Innovation (2011) and the National Network of Manufacturing Innovation:

A Preliminary Design (2013), A Roadmap for US Robotics – From Internet to Robotics

(2013), the Measurement Science Roadmap for Metal-Based Additive Manufacturing (2013),

the National Artificial Intelligence Research and Development Strategic Plan (2016) and A

National Machine Intelligence Strategy for the United States (2018) /see Information Office of

the PRC, 2018, 55–56, citing US sources.

56

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

been legitimate and voluntary, widely practised in early development periods by

developed countries.

Fears about China’s domination of the G5 technology are also a manifestation

of the same logic. Whilst ever US companies dominated the area, there was no

problem50. Now, the threat of a ‘different’ domination, entailing a civilisational y

different country51 has become, especial y for the USA, a serious problem. Yet, this

is less a genuine fear of domination by an authoritarian, undemocratic country

than a defensive reaction to China becoming a technological leader in this, as well

as many other, dynamic economic sectors (Svetličič, 2020b).

China has been very systematic in its acquisition of foreign knowledge. The

»Thousand Talents Plan« unveiled in 2008, for instance, targeted Chinese aca-

demics outside the country, offering them state subsidies and tenured positions in

China’s top universities if they set up research programmes in China based on the

scientific knowledge they had acquired in their work abroad (Magri, 8).

Such developments were also due to the very systematic adjustments to and long-

term orientation of China’s laws and regulations. The evolution of China’s IPR

regime has seen several stages . In the last few years, China has made efforts to re-

view and update its IP legislation. Work on revision of the patent law and the cop-

yright law as well as a comprehensive revision of the trademark law is continuing.

China had no patent law prior to 1984. /…. / In the 1990s, IP theft was rampant,

although Western policymakers largely ignored it when China specialised in low-

-end manufacturing fueled by cheap and abundant labour. As part of accession

into the World Trade Organisation in 2001 China revised its patent law which

represented a major step toward compliance with international standards (Huang

& Smith, 2019).

According to the European Commission (2020b, 16–17):

The former State Intel ectual Property Office of China (SIPO) has been transfor-

med into the Chinese National Intel ectual Property Administration (CNIPA) with

50 According to the World Economic Forum (2018), US companies’ share in the info tech sector

is 73%. Google holds an impressive 90.8% market share of web, mobile and in-app searches.

Among the 10 largest companies by market capitalisation (June 2019), five are from the

USA (Microsoft, Amazon, Apple, Alphabet /the parent company of Google, and Facebook).

Alibaba (China) follows in 6th place (Statista, 2019).

51 It is largely rooted in ethnocentrism, even racism (for more, see Svetličič, 2020a).

China in the Global Economy

57

extended responsibilities for all IPRs, except copyright and agricultural GIs, now co-

vering patents, designs, trademarks and geographical indications for non-agricultu-

ral products. CNIPA reports to the new State Administration for Market Regulation

(SAMR), also overviewing enforcement matters, which in turn reports directly to the

State Council. The National Copyright Administration of China (NCAC) remains

responsible for copyright issues, the Ministry of Agriculture and Rural Affairs handles

matter related to agriculture GIs. It is too early to assess the effect of this administra-

tive reform. The establishment of three specialized IP Courts in Beijing, Shanghai and

Guangzhou is clear progress. It has been fol owed by the creation of specific Internet

Courts in Hangzhou, Beijing and Shanghai also dealing with IPR infringements. In

early 2019, China created a specialised IP court as part of the Supreme People’s Court

(SPC) to focus mainly on patent cases. The creation of such a specialized IP court

within the SPC is promising as it could increase coherence of court decisions at all

levels. On 20 April 2019, the National People’s Congress amended several IP laws: it

strengthened the trademark law regarding bad faith registrations, and modified the

anti-unfair competition law to reinforce the protection of trade secrets. In January

2019, China launched a public consultation on draft guidelines related to bad faith

trademark applications. These draft guidelines should now be adapted to reflect the

new provisions in the law. The draft patent law published for comments included a

number of positive elements, such as the potential inclusion of patent right extensions

and an increase in the level of damages. The revision of the law on plant varieties is

also ongoing. Adoption of the law would bring China closer to joining UPOV 1991,

which would be welcome. Although not going as far as the EU had hoped for, the new

e-commerce law that entered into force in January 2019 recognises the necessity to

protect IPR and addresses the matter of online infringements by platforms.

Regarding China’s IPR policy, there are two prevailing and competing views. The

first one, which we may call the ‘natural evolutionary’ view, argues that China’s path

to IPR protection is historical y similar to that of the USA and will evolve into a

strong IPR protection regime as China develops more IPR itself (Peng et al., 2017).

Parallel to becoming a leader in many technology fields, it is realistic to expect,

and so the declarations say (see Chinese Premier Li Keqiang52), that China will no

longer demand the forcible transfer of technologies and that it will respect intel-

lectual property and related patents in the future. Why realistic? First, because eco-

nomic development in China will facilitate improved IPR protection as economic

development in the USA did in the nineteenth century. The poor countries allocate

few resources to innovation and thus have little IPR to protect. As incomes grow

too, inventive capacity demands emerge for high-quality products and commercial

lobbies start demanding effective protection – with domestic interests coinciding

52 »Enhancing the protection of intellectual property rights is a matter of overall strategic

significance, and it is vital for the development of the socialist market economy«, Li stated

(see Reuters, 2017).

58

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

with foreign interests in seeking better IPR protection. It may thus be predicted

»that when Chinese IPR are significantly violated abroad, China will become more

serious about IPR protection. Therefore, we suggest that China’s indigenous inno-

vation policies need to be strengthened instead of discouraged by foreign IP rights

holders, governments, and other stakeholders« (Peng et. al., 2017, 21, 22, 32). The

more the Chinese are innovative, the more they are interested in protecting their

property rights. This is a natural development, like happened with Japan during the

Meiji Restoration and after the Second World War. Such an optimistic approach

implies that the USA, the EU and other large economies should simply nudge China

towards compliance with international law and to implement regulation consistent

with international standards. Indeed, there are signs that, as the Chinese economy

develops, the government is making efforts to better protect IPR. For example,

China is a member of the World Intellectual Property Organisation (WIPO) since

1980. Running for the top position at the WTO recently (albeit unsuccessful y)

shows the importance China attributes to IPRs and the global technical rules53.

The second view, which we may label ‘rule of law’ view, regards the systemic and

severe violation of IPR in China as the Chinese government disregarding the rule

of law, and the international community must thus pressure it to change in order

to protect the global IPR market (Brander, Cui, & Vertinsky, 2017). This view implies the rule-based countries should punish China for violating the rules54 and

force it from the outside to comply or suffer the consequences. These two views

differ in the assumptions they make about the pathology of institutional change

and, hence, also the appropriate policy response.

According to Li (2020, 1), both views suffer from a narrow lens of Chinese IPR

policy and insufficiently account for the active role taken on by the Chinese

Communist Party (the state) in creating a self-serving political economy. This is

53 China’s Houlin Zhao has been secretary-general of International Telecommunication Union (ITO) since 2015.

54 Minimum damage pay-outs for violations have continual y increased, as have durations of

patent protection. China even became the most litigious country in terms of the number of IP-related cases as early as 2005, and the number of cases has increased at a rate of over 40

percent per year for the past two years. In 2014, China debuted three specialized IP courts, and there are as many as 19 more in the pipeline. And contrary to popular expectations, foreign plaintiffs have actual y fared better in patent litigation in these courts than their Chinese counterparts. Even the 2016 Special 301 Report by the general y bellicose USTR noted »welcome developments« and »progress toward effective protection and enforcement of IPR in

China.« /…/In short, change is occurring at China’s own initiative, and U.S. companies have

taken note: In a American Chamber of Commerce in China survey, 96 percent of respondents

stated in 2018 that China’s enforcement of IP rights improved or stayed the same in the last five years compared with 86 percent in 2014« (Huang & Smith, 2019).

China in the Global Economy

59

partly because of the role of China’s political system and the role played by the

Communist Party in China as the dominant actor which makes China different

compared to the lessons with regard to the IPR strategies of now developed coun-

tries in the past. Even if IPR protection laws are introduced, they might just be

»ink on paper«. As observed, some laws are not meant to be enforced, such as the

rights to vote and to free speech found in the Chinese Constitution. The second

reason is the size of the Chinese economy. When the USA was an IPR violator in

the late 18th century to early 19th century, its economy was smal , accounting for

about one-fiftieth of world GDP (Drabble, 2019). A democratic and small country

that is highly globalised may improve its IPR protection the fastest compared to a

big, undemocratic country with little globalisation (China is a big, undemocratic

country with high globalisation) (see Lipton, 2018, 68). These two factors together

make the impact of China’s IPR issue beyond any country’s experience in history.

Li et al. (2020) may well be right, but only in the short term. In the long term,

leading technology Chinese firms, also active abroad not only by exporting but

investing, would be highly interested in protecting their technology, their IPRs.

Therefore, they will certainly push the Chinese government to install and imple-

ment such protection more efficiently than in the past.

To conclude: China holds the potential to evolve from an innovation sponge –

absorbing and adapting global technologies and knowledge – to an innovation

leader, provided innovations start to contribute to productivity growth more than

in the past. If China wishes to sustain a 5.5%–6.5% growth rate through 2025, ac-

cording to McKinsey (2015) innovations would need to contribute 50% to GDP

growth because:

• the labour force is not growing anymore;

• ageing is set to reduce the working age population by 16% by 2050; and

• the return on fixed assets is declining55.

Sustained, long-run growth will obviously depend on continuous growth in pro-

ductivity, claims the World Bank (2019, xix). Its report proposes the »3+6+7« re-

form agenda to address China’s productivity challenges and achieve long-term

sustained growth:

• China’s future growth will come from 3 Ds: removing distortions, accelerating

diffusion, and fostering discovery.

• China’s authorities are facing six strategic choices in furthering productivity

and innovation.

• China’s authorities will need to address seven critical areas of structural and

institutional reforms.

55 It takes 60% more capital to generate a unit of GDP than it did between 1990 and 2010.





60

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

On this basis, one may conclude that a too aggressive policy vis-à-vis China

(fuelled by accusations…) in the IPR area seems irrational because »slowing

down Chinese innovation will simply weaken its incentive to strengthen IP rights.

Rather than go against the grain, the United States (and the rest of the world,

SM) should instead commit to working with China to foster open innovation and

design knowledge transfer systems that both sides would see as fair and mutual y

beneficial. /…/. Ironical y, if the West wants China to get better at protecting IP,

it also needs to work with China to help it to become a more innovative nation«

(Huang & Smith, 2019).

2.6. CHINA IN THE GLOBAL POWER STRUCTURE

Rapid economic developments, technological transformation of the Chinese econ-

omy, its deeper integration into the global economy, also imply a substantial repo-

sitioning of China in the global power structure, in the world system. Historical y,

many Chinese experts would agree that Mao Zedong inspired China to stand up,

Deng Xiaoping made China rich, while Xi Jinping made China powerful. Second,

it is important to know that Chinese civilisation has seen many ups and downs,

now only returning to strength. Professor Wang Gungwu observed that while the

world has had many ancient civilisations, the only ancient civilisation to fall four

times and rise again is China. As a civilisation, China is remarkably resilient. The

Chinese people are also remarkably talented. As the Chinese look back over 2,000

years, they are acutely aware that the past 30 years under CCP rule have been the

best 30 years the Chinese civilisation has experienced since China was united by

Qin Shi Huang in 221 BCE (see Mahbubani, 2020).

This is a historical framework for China of today’s role in the modern world in

which many see China about to replace the USA as the leading world power.

Perhaps even as the locomotive of global economic growth, but not a leading mili-

tary power. »US retreat from the world stage has given China an opportunity to

fill the vacuum, particularly as the epidemic has forced US to turn inwards even

more for now. It would be a mistake, however, to underestimate the power and

leadership of the US:/…/ China is likely to emerge as a bigger player in political

as well as economic terms while EU will emerge weakened from the crisis«, con-

cludes the EIU study (2020, 3–4).

Not surprisingly, fears about China’s growing economic power are rising (see Ch.

2. for details). The world is headed towards Luttwak’s prediction, already dating

from the early 1990s, »that the post-Cold War international relations will turn

from geopolitics to geo-economics, especial y as regards relations among most

China in the Global Economy

61

powerful states«, implying that economics will dominate over politics. Despite

such a growing role of economics vis-à-vis security/defence, it must be observed

that, notwithstanding fast technological developments, China is still lagging be-

hind the USA militarily56. Such lagging behind is slowing down tectonic changes

in the world because there is a strong long-term correlation between economic/

production capacity (Susan Strange would say structural power) and military

power, and the position of the state in the global power system. This does not

mean that both powers will grow and fall parallel. This normal y happens with

time delays (see Kennedy, 1987, xvi, xxii). This also explains why the Yuan can-

not challenge the position held by the dol ar as the world’s main international

reserve currency57. For a country to become a dominant world power, its cur-

rency must also have an important role as an international reserve currency, to be

used widely in international transactions. Geopolitical y, to become an interna-

tional one, a national currency needs to not only have economic but also political/

military backing, which is now lacking in the case of China. Countries namely

prefer to purchase assets in a currency which can be sold easily and rapidly in

the future, which is only possible if that currency is broadly used in international

transactions. The Yuan is not such a currency. It is used ever more in transac-

tions in Asia and will be used more upon signing of the Regional Comprehensive

Economic Partnership (RECEP). The denomination of foreign reserves in dol ars is namely strongly security/defence related. Countries which for security depend

firmly on the USA (Japan, South Korea, S. Arabia, even Germany) have almost

80% of their monetary reserves denominated in dol ars. Putting it figuratively, to

become an international currency a country must follow as much as the Roman

gods of Mercury (trade, economics…) and Mars (war, diplomacy, geopolitics)

(see Schuman Report, 2020). »Xi Jinping is now the strongest defender of free

trade on the global scale and of action to combat climate change, and his »China

Model« envisages his country’s return to the pre-eminent position it held in the

world before succumbing to Western aggression in the 19th century« (Golden,

2020).

Irrespective of such deficiencies, it is becoming obvious that, China’s economic ex-

pansion, also linked to its political and military expansion, already means a change

to the existing world order, even though China in fact sees itself as a ‘keeper of

the international order’ from which it has benefited so much. »The construction

56

Although it has, according to Global Firepower estimates, roughly 2.19 million active military

personnel at its disposal. With far fewer in second and third place are India and the United

States with 1.45 and 1.40 million, respectively.

57 Only app. 2% of global transactions are carried out in yuan (China dashboard (digitalocean-

spaces.com).

62

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

of new multilateral institutions, including the BRICS’ New Development Bank

(NDB, created in 2014), the Chiang Mai Initiative Multilateralization Agreement

(CMIM, signed in 2014), the expansion of the Shanghai Cooperation Organization

(SCO, founded 2001), and the Regional Comprehensive Economic Partnership

(RCEP) can demonstrate it« (Stephen and David Skidmore, 2020, 9). On the other

hand, China also criticises the existing order and the USA’s dominance in many

international organisations by creating new, alternative, institutions like the Asian

Investment and Infrastructural Bank (AIIB)58 which could challenge the World

Bank’s role, at least in Asia. In Hočevar’s optimistic view (2019, 15), it seems more

that »China does not undermine the capitalist world order, but rather tries to

challenge the US position in the existing capitalist world order in order to form a

non-hegemonic capitalist world order. /…/ All in the context of consolidating in-

ternal hegemony in China and solving internal political and economic issues and

problems«. He may be right for now, but the situation may change when China

achieves a more hegemonic position. »History has demonstrated that power cor-

rupts, and that aspirations can, along the way, be broadened, including the one to

shape the world more according to its own ideological design (although they also

can, or better put, will be gradual y changing; Svetličič, 2020a, 358). Let us not

forget that the Chinese are very long-term-oriented. As H. Kissinger in On China

(2011) so il ustrated nicely, the »Chinese strategy was guided by the Chinese game

of wei qi, not Western chess. In Western chess, the emphasis is on finding the fast-

est way to capture the king. In wei qi, the goal is to slowly and patiently build up

assets to tip the balance of the game in one’s favour. The emphasis is on long-term

strategy, not short-term gains«.

Based on a detailed historical analysis, Subramanian, perhaps also too optimisti-

cal y, notes that China’s dominance is more imminent than usual y thought (it

may already have begun), will be more broadly based (covering wealth, trade, ex-

ternal finance, currency), and could be as large in magnitude in the next 20 years

as that of the UK in the halcyon days of the Empire or of the USA in the aftermath

of World War II (2011, 4).

It is much too early to know what kind of world power structure we will have in

the next decade(s). Yet what is clear is that the primacy of the USA is at the depar-

ture gates. The international system’s structure is changing with the evaporation of

America’s unipolar role. »The historian Niall Ferguson has written that the bloody

twentieth century witnessed the descent of the West and a reorientation of the

world toward the East. Realists go on to note that as China gets more powerful

and the United States’ position erodes, two things are likely to happen: China will

58 It was established in January 2016 and has already 103 members.

China in the Global Economy

63

try to use its growing influence to reshape the rules and institutions of the inter-

national system to better serve its interests, and other states in the system – espe-

cial y the declining hegemon – will start to see China as a growing security threat.

The result of these developments, can be tension, distrust, and conflict, the typical

features of a power transition. In this view, the drama of China’s rise will feature an

increasingly powerful China and a declining United States locked in an epic battle

over the rules and leadership of the international system« (see Ikenberry, 2008).

One economic condition for China’s hegemony (share in GDP) thus likely to be

achieved in the medium term. This is an indispensable, yet not a sufficient condi-

tion for a hegemon. China is not superior in all fields, particularly not militarily.

Due to the weakness and underdevelopment of its financial sector and absence of

democratic control, it is too vulnerable to take on the role of head of the global

economic system. This means we must be careful with forecasts of an ever more

turbulent, unpredictable, uncertain and world of tectonic changes. Also to be care-

ful not to jump too early over to pessimistic (‘new Cold War’) or over-optimistic

conclusions (size doesn’t matter or China will become democratic as it develops).

Or with respect to »either underreacting (as happened after Tiananmen 1989)

or overreacting, as is happening today« because »China is already too enmeshed

in the international system therefore it is better to speak about ‘another, if pro-

tracted, big chill« (Liu, 2019).

Nevertheless, it seems we have arrived at a critical junction regarding the

kind of the power structure that will prevail in the future. It is evident that we

are entering an uncertain post-Anglo-Saxon or post Western world in which

China and India will emerge as superpowers. Samuel Zipp, historian at Brown

University, figuratively stated, »that American power is in its twilight years – the

strife in the country’s hospitals and streets makes that clear. Propping up old

notions of American indispensability ensures that we are fighting yesterday’s

battles« (2020). The 6 January insurrection at the US Capitol, actively inspired

by President Trump, in fact looking almost like a bottom-up coup, may be seen

as a final sign of the weaknesses of American democracy and the dangers of

populism. It also demonstrates the fine line between democracy and fascist ul-

tra-nationalism with elements of white supremacy and violence. S. Berman, a

professor at Barnard College, Columbia University goes as far as to predict that

»critical to determining the outcome of the ‘contest’ for geopolitical domination

between the United States and China, is whether the United States can over-

come its current political polarization and dysfunction. If it can, and American

governments can redirect themselves to building alliances that can counter and

contain, without overly antagonizing China, there is no reason to believe that

the United States cannot remain a world power« (Poll: The Next 50 Years of

Foreign Policy).

64

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

»Since the ability of great powers to impose their preferences will only decline fur-

ther in the future/.… /the USA will no longer be the hegemon it once was/…/The

twenty-first century will not be America’s, China’s, Asia’s, or anyone else’s«, ac-

cording to Kupchan (2012). »The emerging global landscape represents the end of

an era dominated by the USA. Five hundred years of ‘Western’ dominance is com-

ing to an end. Even the latest Global Trends Report of the US National Intelligence Council (NIC) describes the shifting nature of the world order as an ever-wid-ening range of states, organisations, and empowered individuals that will shape

geopolitics. It concludes that the emerging global landscape represents the end

of an era dominated by the US, and that any US attempt to impose order will fail

(ibid., 2020). Are we facing a shift towards tripolarism, rather than bipolarism59,

as the USA and Russia lose their shares while China and India forge ahead? Is Pax

Americana to be substituted by Pax Sinica, Chimerica (G2; the USA and China

joining hands in ruling the world) or are we going to have a more multipolar world

like a concert of more powers coordinating their role like in the past, remains an

open question. According to Jones (CSIS, 2020; https://www.csis.org/analysis/

world-order-after-covid-19); »there will be by 2025-2030, multipolarity between different parties, with the United States, China, Russia, and the European Union

representing different poles. But at the macro level, these poles may align around

regime type, with the democratic United States and Europe aligned against Russia

and China«. China can enhance its position by relying on smaller regional states

in Asia or elsewhere. Geeraerts (2011, 59) is of a similar opinion, positing that

»the emerging multipolar structure could be a multi-layered one: consisting of

two tiers. In the first tier we could have the US and an ever more powerful China

(EU?). The second tier comprises most regional powers like India, Brazil, South

Africa, Russia, Japan, the large European states and the remaining members of

the G20«.

Final y, it would also be important to see how the general public around the world

and in China see the coming changes in the global power structure. According to

Poushter & Moncus (Pew Research Centre; 2020), people in many nations name

China, not the USA, as the world’s leading economic power. A median of 48%

across the surveyed 14 countries says this, while 34% say the USA is the global

economic leader. South Korea and Japan – the two nations geographical y closest

to China among those surveyed – are the only countries where the USA is the

most common choice for leading economic power.

The Chinese view of their future role in the world remains unclear and varies

when one considers diplomats/politicians or academics as to whether China

59 Rodrik (2020) believes, that as the US power recedes, we go into a multi-polar global system.

China in the Global Economy

65

wants superpower status. It seems that China is aware of the danger of strategic

overstretch (to paraphrase Kennedy, 1987), as an imbalance between its strate-

gic commitments and its economic base, and international exorbitant responsi-

bilities like a global insurer in the case of downturns implying colossal economic

transfers. Yet China is not immune from triumphalism after abandoning Deng

Xiaoping’s low-profile approach of making China great again60. Such wolf warri-

ors, although popular in some circles in China, have their limits because »almost

every significant world power has learned that overconfidence often leads to

missteps, and these missteps then lead to the rapid downfall of nations, regard-

less of their ideological system or economic prosperity« (Mahbubani, 2020).

Recent Chinese public diplomacy replacing the previous »charm offensive« strat-

egy (Kurlantzick, 2007, 6) could il ustrate such a more ambitious strategy, al-

though its mission was initial y to neutralise »China’s theory of threats« and thus

improve China’s reputation in the world (Tai-Ting Liu Tony, 2019, 77). Geeraerts

see China as a ‘pandragon’, featuring a double identity: i.e. a ‘weak power identity’

and a ‘strong power identity’. At times, it considers itself a mere developing coun-

try that was wronged by the imperialists and is therefore entitled to a great degree

of leniency and support. At other times, it sees itself as a great power that is well

on its way to restoring the glory of the ancient empires and wants to be treated

on an equal footing (2013, 61). Even the political elite is not very explicit as to

how they see the future role of China in the global order. According to Roland,

the National Bureau of Asian Research (2020), »the Chinese leadership has not

offered an explicit description of the world order it would like to see emerge, the

kinds of changes it would like to see occur, or the types of mechanisms, institu-

tions, norms, and rules that it would like to see arise as part of a new international

system under its helm. This does not mean that the leadership does not have a

vision of what it wants«.

Most Chinese scholars agree that China has multiple identities, including that

of a socialist country, a developing country, a rising power, a great power, and

an East Asian regional power. They disagree on which identity should be most

salient, but have a clear sense of China’s direction; namely, they want to make

China great again. However, they appear to be at odds as to the ultimate destina-

tion of China’s rise on the global stage. In particular, they disagree on whether or

not China should seek to become a new superpower. Moreover, Chinese scholars

are actively debating whether China should continue to maintain a low profile or

actively strive for achievement in a new era. A rising China faces a wide range of

60 Global ambitions are not whol y new: The Nationalist leader Chiang Kai-shek and his

Communist counterpart, Mao Zedong, both held visions of a major international role for

their country in the 1940s and 1960s, respectively (Mitter, 2021).

66

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

competing challenges and pressures from domestic and international audiences.

How to manage its conflicting roles in ways that advance its national interests,

but avoid generating dangerous misperceptions and expectations among various

audiences? In particular, a rising China must balance between its competing in-

centives of resolve and reassurance, status and responsibilities, and the domestic

audience and the international audience. These competing incentives have shaped

the Chinese debate on its international positioning (see Pu, 2017).

Consequently, it is not total y clear whether the country wants to be a dominant

power, substituting the USA or whether there is something else on its mind? »The

influential Colonel Liu Mingfu strategy is that China should take the leading role

from the US following the experience of the UK, which quietly left the lead role

to the US after the Second World, and not the example of the Soviet Union, which

directly clashed with the United States in the Cold War61. China should have in-

fluenced that the USA would do so at the time China took the lead. He advocates

a tolerant, long-term strategy, a century-long marathon. It predicts China will

need 30 years to catch up to the USA by size of GDP, 30 years to become equal y

strong in the military field and 30 years to match its GDP per capita income (see

Miller, 2016). It is nevertheless becoming clear that »China’s grand strategy under

Xi Jinping is heading in a more assertive direction, yet still preserving a defensive-

oriented foundation. President Xi’s approach is rebranding a narrative of peace-

ful rise with international development cooperation and employing an increas-

ingly assertive stance on global issues, and the national objectives as »the Chinese

Dream of the great rejuvenation of the Chinese nation«. In this assertive turn, these objectives have been blamed for igniting long-term competition and tension in an interdependent great power politics. /…/ It is aiming for leaving behind low

profile global role and achieving the goals of national« (Öterbülbül, 2021).

Following such a philosophy, a new model of great-power relations may be devel-

oping and not a replication of the old Cold War model. »Cold war between the

two countries would arrest the progress on both sides of the Pacific/…/ since US-

China relations are essential for global stability and peace. /…/US-China relations

need not – should not – become a zero sum game« (Kissinger, 2011). It would be

wrong to see, as some Western observers do, in China’s rise a version of a 21st cen-

tury cold war like that between the US and Soviet Union after WW262 (see Mitter,

61 Concentrated on military pushed Soviet Union behind economical y. It seems that China has

learned a lesson from the col apse of the Soviet Union. It is restraining its defence expenditures while focusing on economic development (see Mahbubani, 2020).

62 It may be more like the rivalry between the UK and Germany in the period 1860–1914, which

led to war.

China in the Global Economy

67

2021) because the situation today is very different. The Soviet Union was then a

serious military challenger while China today is not (yet?). But, if Washington de-

fined every such climbing power ladder of China as dangerous, »it will be setting

the United States up against the natural dynamics of international life and falling

into what the scholar Graham Allison has called the Thucydides trap—the danger

of a war between a rising power and an anxious hegemon« (Zakaria, 2020). The

smaller the difference in power between the leading and the rival states, the greater

the chances of conflict (see Kugler & Organski, 1989). Therefore, Kugler (2006)

noted that China’s growing power over the USA greatly increases the chances of

war over the next few decades. Nevertheless, history shows that changes in the

international order, improving global governance and the strengthened role of

international organisations63 can contain the rivalry and thereby help to avoid

conflicts and war.

It seems that the Beijing Consensus is unlikely to substitute the Washington

Consensus in the foreseeable future. The near future will not be the same as the

last century with a single country leading. There could be power sharing between

China, the USA, Europe/the EU and Russia (perhaps also India) within the spirit

of a ‘col aborative autonomy’ logic. Europe is not militarily strong enough but has

an advantage in terms of its soft power. China is likely to emerge as the most pow-

erful player, although it will not be sufficiently powerful to dominate but strong

enough to be a significant shaper of the world order. Emmott (2006) compares

China with Britain in the early 19th century when, despite being more powerful,

it was unable to dominate. Perhaps we are living in »a transition from a global

order constructed around a few commanding international organizations domi-

nated by powerful Western states, to a more multifaceted order based on complex

and polycentric governance arrangements among a wider community of national

governments, international organizations and non-state actors« (Mette Eilstrup-

Sangiovanni & Stephanie C. Hofmann, 2019). The erosion of USA’s hegemony will certainly jeopardise the stability of the system, endangering the functioning of the

existing order, throwing its stability off balance (Svetličič 2020a, 359). Why not

end this chapter with the last sentence of Kissinger’s book (2011): »When Premier

Zhou Enlai and I agreed on the communiqué that announced the secret visit, he

said: ‘this will shake the world’. What a culmination if, forty years later, the United

States and China could merge their efforts not to shake the world, but to build it«

(2011).

63 Which was not the case before WWI and WWII.





68

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

2.7. EU POLICY ON CHINA64

2.7.1. Introduction

As an EU member, there is also a formal framework for Slovenia to comply with

concerning bilateral cooperation. This means it is important to be aware of such a

framework before designing bilateral cooperation.

The EU was not made to play an international role at the beginning. It later be-

came an economic/political power, even if it was »unaware of it«, according to

Juncker (2020, 3). »Whilst Europe is powerful economical y, it is gaining political

influence. This is how our partners see us, apart from the new Americans, Trump

and others«, he stated. »The Chinese, with whom I have always had good rela-

tions, see Europe as an economic power, but also as a political player. But when we

were at the Elysée Palace with Emmanuel Macron, Angela Merkel and Xi Jinping,

I told the latter that China was our strategic partner, but also our competitor and

rival. And the Chinese president feigned surprise«65. In such a way, Juncker nicely

il ustrated the rich and long evolution of the relationship between the EU and

China over the years, from not having ambitions to play an important global role,

to becoming an important global player and, in fact, a strategic rival of the China.

Relations between the EU and China have developed fast since diplomatic ties

were established in 1975. Stil , the road has been quite bumpy, going through

tens of top-level meetings,66 understandably not easy, particularly when they be-

came competitors, despite having so many interests in common. According to

Geeraerts (2020), their cooperation is driven by two distinct underlying logics:

a power-based one and a transformational one. According to the power-based

logic, the EU and China relationship reflects their relative power positions, mak-

ing cooperation more difficult. In contrast, a transformational logic suggests that

64 Within this paper it is impossible to cover all aspects, particularly since the developments of the last few years have been extremely dynamic. Therefore, we will concentrate on the main

issues relevant to Slovenian–China bilateral cooperation, like the general strategic framework,

FDI, trade and IPR.

65 China hates the term »systemic rival« and was surprised by publication of »EU-China: A

Strategic Outlook« in 2019. Chinese experts openly admitted (author’s personal experience) that in 2020 China must respond to the new approach taken by Brussels (Szczudlik, 2020).

66 The first EU–China Summit was held in London as far back as 1989 and the last, the 21st

one, in April 2019 in Brussels (see: https://eeas.europa.eu/delegations/china_en/60836/

Joint%20statement%20of%20the%2021st%20EU-China%20summit#:~:text=%20

Joint%20statement%20of%20the%2021st%20EU-China%20summit,to%20deepening%20

their%20partnership%20for%20peace%2C.%20More%20).

China in the Global Economy

69

rules and shared norms can sharply reduce conflicts of interest and mitigate con-

cerns about relative gains by creating trust and reciprocal socialisation, making

enduring cooperation between the EU and China more likely. Diverging trends,

which are mutual y reinforcing, are pushing the relationship towards competition

and cooperation. The direction in which the EU–China partnership could evolve

– more competition or more cooperation – is shaped by the relative strength of

the diverging and converging trends.

Europe’s policy on China has to date been one of conditional cooperation. The

EU is prepared to help the PRC, to invest in development of the country but, in

turn, China must meet a number of standards and demands. ‘Hard power’ has

barely made it onto the EU’s agenda in the past, but it has now. On the contrary,

Europe has wished to forge a tighter link and strengthen its influence through

ever increasing economic interdependence and shared values. Not surprisingly,

the EU is still perceived more as a normative actor, founding its policies on val-

ues, institutions and cooperation rather than power politics (see Geeraerts, 2011,

62). The EU has gradual y and silently become the regulatory superpower (see

Bradford’s »The Brussels Effect« book). Relative success in terms of imposing its

standards67, has been seen for example, in the field of data protection (through

the GDPR) and road vehicle safety, and it will soon so again through taxes on

carbon and digital commerce, and its recent digital sovereignty ideas (see Klein,

in Hobbs, 2020, 37).

Such an attitude may face problems in light of the pragmatic realpolitik that has

been followed by China with a touch of divide et impera logic in the case of rela-

tions with individual EU members. This policy has been facilitated by a lot of free

space for separate international (economic) relations policies by individual EU

member countries which, in China’s eyes, might be understood as sign of EU dis-

unity and weakness. The EU is encountering an increasingly aggressive Chinese

policy of bringing about more flexible and less critical positions about China

(market economy status) within the EU itself. The 17 + 1 initiative is already one

such strategy that might lead to intra-EU divergences or turn some members

into China’s ‘fifth column’ in the EU (for more, see Ch. 6). It is hence no surprise

that alarm bel s have started to ring with respect to China’s ability to use its eco-

nomic power to undermine any harmonised European policy on China. However,

Ferchen and colleagues believe that this is an exaggeration and that the interests of

many interested European stakeholders are thereby being ignored. This points to

67 As Moravcsik noted in his review of Bradford’s book, the EU’s stringent regulations raise the standards of producers in China, the USA, and other countries across the globe.



70

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

the urgent need to step up cooperation in Europe to create an effective response

to China’s challenges (2018, 1).

The EU’s changing strategies concerning China have, apart from hard economic

and political factors, also been influenced by public opinion on China. Initial y,

such opinion was quite positive, but gradual y, particularly after the GR and big

Chinese takeovers of European ‘champions’, it changed towards more negative at-

titudes. The Covid pandemic has added to this substantial y.

Figure 29: Has your view of China changed during the Covid crisis?

Source: European Parliament, 2020b, 10.

The lack of the reforms expected from and even promised by China in the areas of

economics and human rights has also led to this deterioration in opinions. When

China joined the WTO in 2001 it agreed to reform and liberalise important parts

of its economy. It made some progress, but many problems remain, including dis-

criminating industrial policies and non-tariff measures, strong government inter-

vention in the economy (dominant position for state-owned firms), cheap financ-

ing, and poor protection, enforcement of intellectual property rights. Progress on

human rights has also been slow, even getting worse recently.

The EU has become much more concerned and proactive about China, trying to

ensure a level playing field for its firms in China’s markets, parallel to its trans-

formation from a developing to a technological y advanced country, rivalling EU

firms. Realistic, effective and coherent engagement with China built on European

values and interests is a basic starting point. Thus, the EU and China’s ability to

engage effectively on human rights will be an important measure of the quality of

the bilateral relationship. The common belief is that the EU must become more





China in the Global Economy

71

ambitious and assertive, going beyond its mainly defensive approach. Yet it seems,

that like the relations between US-China, also EU-China relations are mainly a

function of economic interests, not ideology, with a touch of pragmatism required

while working with the China that exists, not dreaming of the China one might

wish for. While it is thus unrealistic to expect perfect unity between EU member

states on all issues related to China, the growing convergence seen in their poli-

cies should provide a new platform for a more coherent and effective European

approach (Oertel, 2020).

2.7.2. Evolution of the EU–China Strategy

Sino-European relations have seen turbulent times in the past. They have been

and »remain highly nuanced and full of individual priorities created by bilateral

interactions. The balance of power has shifted. China’s economic power and po-

litical influence have grown with unprecedented scale and speed, reflecting its

ambitions to become a leading global power«, (European Commission, 2019a).

This new situation cal s for new strategies. The emerging consensus on China

among EU member states is largely a response to such changes and »existing eco-

nomic imbalances, non-implementation of agreed principles of fair competition

and China’s unwillingness to reciprocate the openness of the EU market« (also see

Oertel, 2020).

Since 2003, the EU and China have acknowledged each other as strategic partners

in the Comprehensive Strategic Partnership, which has deepened and broadened

cooperation in a broad range of areas. The EU and China have become highly in-

terdependent as a result, yet have faced many ups and downs in their cooperation.

In its first ever EU policy paper, China recognised the EU as »a major force in the

world«, while in 2006 the EU called China a »re-emerged major power«. Slowly

but steadily, the EU and China have built a partnership, probably one of the most

structured relationships between two major powers in today’s world arena and

an important element of reconfiguration of the international order, triggered by

the rise of the emerging powers. Its significance lies not only in connecting to

the key order-shapers in today’s world (Chen 2016), but in the management of

the antagonistic quality of the relationship between actors holding such different

identities (Michalski and Pan 2017; Geeraerts, 2020, 1).

»The EU’s reinterpretation of its China policy started in 2016, to a great extent

as a reaction to China’s takeover of the German company Kuka, a manufacturer of industrial robots. It was an example of implementation of Beijing’s »Made in

China 2025« strategy that had been announced a year earlier. This takeover made

the EU aware of new potential threats coming from China, chiefly as regards criti-

cal infrastructure and high-tech industry. This acted as an alarm bel . Since then,

72

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

we can talk about the lingering process of sharpening the EU’s policy on China«

(Szczudlik, 2020).

The EU’s new approach to China was set out in the Strategy on China in 2016

(https://eeas.europa.eu/sites/eeas/files/council_conclusions_eu_strategy_on_

china.pdf), which reflects on the shifting balance of challenges and opportunities over time. For the EU, China has simultaneously become a cooperation partner in

several fields where interests have converged, a negotiation partner, an economic

competitor, and a systemic rival. This more realistic strategy is based on effective

and coherent engagement with China, as well as European values and interests

(see European Commission, 2020d). It remains the cornerstone of EU engage-

ment, providing the foundation for delivering a further EU policy shift towards

a more realistic, assertive and multi-faceted one-voice approach. The starting

point was that neither the EU nor any member state can effectively achieve their

aims concerning China without full unity. In cooperating with China, all member

states, individual y and within the sub-regional cooperation frameworks such as

the 17+1 format, are responsible for ensuring consistency with EU law, rules and

policies (see European Commission, 2019a).

By labelling China, a systemic rival in 2019, Europe dramatical y toughened its

political stance on China. In a strategic communication mapping out of 10 proposals for dealing with Beijing, the European Commission also slapped coun-

tries like Italy for becoming too closely aligned with China’s flagship One Belt,

One Road programme. In such a way, the Comprehensive Strategic Partnership Strategy, looking at China mainly as a (difficult) partner, was updated in March

2019, partly in reaction to the Made in China 2025 strategy and the different norms and values that underpin the EU and Chinese political and economic

systems. It redefined the understanding of reciprocity in an attempt to convince

China to open its market and introduce economic (but also social or maybe even

political) reforms so as to become similarly open to the EU. Based on such reci-

procity, the EU is set to close those areas which in China remain closed off to the

EU. Another reason of this stronger assertiveness is that the EU and China have

become competitors in third markets.

As the Chinese leadership also shows greater assertiveness in disseminating al-

ternative models of governance (on international, regional and bilateral levels),

China is also acting as a systemic rival, on an increasing number of issues. The

Covid 19 pandemic has amplified the pre-existing political and economic chal-

lenges in EU–China relations. It has exposed the EU’s over-reliance on China for

the supply of strategic goods and also China’s confrontational Wolf Warrior diplo-

macy, which has entailed the use of a wide range of tools, including disinforma-

tion campaigns, political influence and economic coercion, in an attempt to alter





China in the Global Economy

73

narratives critical of China’s management of the crisis. It has also clearly demon-

strated the need for a ‘more robust’ EU policy on China (see Greiger, 2020b).

Such a more assertive, pragmatic approach has been upgraded in the new concept

of strategic sovereignty proposed by the European Council on Foreign Relations

which might help guide the EU and the member states through this new era of

geopolitical competition. This proposed sovereignty includes »strategic auton-

omy«, »regulatory sovereignty« and increasingly »digital sovereignty«. Strategic

sovereignty implies that the EU and the member states must preserve for them-

selves the capacity to act in the world, even as they remain deeply interdependent.

Promoting European digital sovereignty is a critical step in this effort (Shapiro, in

Hobbs, 2020, 7).

In 2020, the EU–China Strategic Agenda for Cooperation was adopted by both

sides. The two sides agreed to implement it through their annual Summit, which

provides strategic guidance for their relationship through the three pil ars directly

underpinning the Summit:

• the annual High Level Strategic Dialogue;

• the annual High Level Economic and Trade Dialogue; and

• the bi-annual People-to-People Dialogue; through their regular meetings of

counterparts and their broad range of sectoral dialogues (European Commis-

sion, 2020a).

2.7.3. Trade and Intellectual Property Rights

The European Union and China are two of the biggest traders in the world. China

is now the EU’s second-biggest trading partner behind the USA while the EU is

China’s biggest trading partner (number 1 in imports and number 3 in exports).

In 2019, the share of exports to China in EU exports was 9.3% but for imports

it was as much as 18.7% (EU Commission, 2020e).With China having entered

the WTO, Europe and China have become increasingly intertwined economi-

cal y. Two-way trade in goods and services has expanded over the last decade by about 60% (imports more than exports), to more than half a trillion euros annual y (European Commission, 2019), but a negative trade balance persists (EUR

163,746 billion in 2019; see Figure 34).

Such trade is based on WTO principles, although China as a large country is able

to find ways and means to interpret these principles in its own way. On the other

hand, the EU is committed to developing open and transparent trading relations

with China to ensure that China trades fairly, respects intellectual property rights

and meets its obligations as a WTO member (see https://ec.europa.eu/trade/

policy/countries-and-regions/countries/china/).

74

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Since the WTO mechanism for dispute settlements was paralysed after President

Trump did not nominate a US representative to the WTO Appel ate Body, on

28 October 2020 the European Commission, the European Parliament and

the Council reached a political agreement to reinforce the EU’s Enforcement

Regulation. The idea was to enable the EU to respond resolutely when trade part-

ners hinder effective dispute settlement resolution, for instance, by blocking the

composition of panels. As part of the agreement, the Commission committed it-

self to developing the EU’s anti-coercion mechanism swiftly. These changes will

empower the EU to protect its trade interests despite the paralysis of the multi-

lateral dispute settlement system in the WTO. The final agreement between the

co-legislators also expands the scope of the regulation and of possible trade policy

measures to services and certain trade-related aspects of IPRs68. This will fur-

ther strengthen the Union’s arsenal for enforcing its rights by allowing it to adopt

countermeasures in a broader range of fields. The revised Regulation will enable

the EU to react even if the WTO has not delivered a final ruling because another

WTO member is blocking the dispute procedure by appealing to the non-func-

tioning Appel ate Body and by not agreeing to an alternative arbitration under the

WTO Dispute Settlement Agreement. This new mechanism will also apply to the

dispute settlement provisions included in regional or bilateral trade agreements to

which the EU is a party if a comparable blockage arises (European Commission,

2020e).

The EU’s China strategies also covers cooperation in science and technology. The

renewed strategy in 2017 emphasises innovation, the cross-border transfer of R&D

results, and greater reciprocity in access to research centres; demands the EU has

made since 2016. The »EU–China 2020 Strategic Agenda for Cooperation« reem-

phasise the importance of facilitating trade between the two according to WTO

rules and procedures, including in the case of trade remedy investigations or im-

posing trade remedy measures, to prevent their abuse. They agreed to reinforce

the Intellectual Property Dialogue mechanism so as to strengthen cooperation in

combating counterfeiting and piracy as well as to make full use of the new techni-

cal cooperation programme in that regard.

Over the past 5 years, Europe has become a global trailblazer in digital policy-

making – attracting both the admiration and exasperation of many. »Making

Europe fit for the digital age« ranked third among the European Commission’s

68 The EU is negotiating a series of bilateral and regional trade agreements that include

comprehensive IPR chapters, aimed at setting comparable levels of IPR protection for those

existing in the EU, while taking into account the development level of the trading partners

(European Commission, 2020b).

China in the Global Economy

75

list of objectives for the 2019–2024 period. This prioritisation is evidenced by a

raft of legislative initiatives on artificial intelligence, data, and other areas, all pub-

lished just a month before the lockdowns across Europe began (Hobbs, 2020, 93).

Ditching its previous laissez-faire attitude to tech regulation in favour of an as-

sertive approach, the EU has actively intervened to raise privacy standards, levy

landmark antitrust fines on tech companies, and shape the debate on issues such

as online harm and ethical artificial intelligence. »The result is that today the EU

is the world’s leading digital regulatory power. But is regulatory power enough to

protect Europe’s interests and vision for the internet and digital technologies? If

so, what comes next after the milestone 2016 General Data Protection Regulation?

How can we ensure regulation does not damage the internetś essence and found-

ing values, or make it less attractive, profitable, or useful? Must the EU continue

to work unilateral y on digital issues or is there scope for transatlantic or other

alliances?«, Hobbs asks (2020, 91).

Technological sovereignty has spread like a viral phenomenon among European

leaders in the past 6 months. Since the COVID-19 crisis started, politicians across

the left–right spectrum have begun to push to reduce Europe’s dependence on

USA-or Chinese-origin technologies. From vaccine development to artificial

intelligence, billions of euros are now being mobilised across the EU, while the

rhetoric has turned nuclear. »If we don’t build our own champions in all areas —

digital, artificial intelligence«, French President Emmanuel Macron said recently,

adding, »our choices will be dictated by others«.

The idea is to update the European Commission’s AI strategy that was adopted

back in April 2018. It was published parallel to the Commission’s proposals to

establish a »common European data space«. The strategy laid the foundations for

comprehensive digital sovereignty of AI Europe: From rule-maker to superpower

in the age of US–China rivalry – the ECFR/336 54 strategy by clarifying the main

elements of the EU’s future policy mix on AI. The core assumption behind the

strategy is that Europe »can lead the way in developing and using AI for good and

for al , building on its values and its strengths« (Renda, in Hobbs, 2020, 54).

On 19 February 2020, the Commission launched a wide-ranging package con-

taining its ideas and actions on the digital transformation, including a white paper

on AI and a European strategy for data. Both very assertive and comprehensive,

the package is another step forward in Europe’s quest to lead in »human-centric«

AI. It is based on a specific vision of the future of data and AI, including the expec-

tation of a forthcoming paradigm shift, from a cloud-dominated environment to

data being much more widely held. In the years to come, the Commission expects

the current 80/20 situation (80% of data stored in the cloud and 20% local y) to

shift to a 20/80 scenario (with 80% of data being local y stored in, for example,





76

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

devices, cyber-physical objects, and edge computing). With this shift, platforms

like Google and Alibaba may lose some of their dominance (Renda, in Hobbs,

2020, 58).

2.7.4. Foreign Direct Investment

Since opening up in the 1980s, China has been a very attractive host country for

FDI. Foreign companies started to compete on how to conquer the huge Chinese

market despite the not too friendly and very complicated, often changing FDI

regime. Yes, the market for inward FDI in China is very important, but the big

issue of recent times has been the expansion of China’s outward investment. The

massive increase in China’s investments, its taking over of technology-leading

companies (see Godement et al., 2017) have thus become genuine economic

fears in the EU– and China’s economic relations. Investments opens the door not

only to economic, but also political influence. Fears have also spread in the gen-

eral public, with public opinion growing more hostile (Grant & Barysch, 2008)

yet oscil ating between »China saving Europe« and China taking over Europe«

(Shambaugh, 2013). The attitudes held by individual workers or trade unions are

more favourable, although the situation has been changing lately in a more hostile

mood. Consequently, questions about the implications of such Chinese FDI for

workers and organised labour in Europe have been raised69.

It is not only a fear of Europe’s crown jewels being taken over, but in addition it

regards the »significant gap in investment openness between the EU and China.

Chinese investors enjoy one of the most open investment regimes in Europe, with

almost unfettered access to all industries. China on the other hand continues to

strategical y limit access for foreign companies in many sectors and there is ram-

pant informal discrimination against foreign firms« (Hanemann and Huotari,

2019, 2). China still limits access to strategic sectors, while many governments of

developed countries have recently also started to do this. The new Law on FDI is

reducing restiveness and thereby improving the situation (see Ch. 2.4.1.). A »level

playing field« is lacking in this area. In the current situation, China is exploiting

the fact that the European market is open to Chinese goods and investments,

69 Burgoon, Raess’ (2014) study concluded that Chinese FDI does not seem to be more (or less)

focused on investing in the least regulated labour markets than other sources of FDI. Second,

organised labour is cautiously optimistic about Chinese investors as being no more or less

threatening to organised labour than other investors. Third and as expected, less-skilled, more

vulnerable, pro-labour-union workers in Europe tend to be more rather than less enthusiastic

about Chinese management than their fellow citizens.

China in the Global Economy

77

while European firms face more limits on their exports to and investments in

China.

Many governments have therefore started to be concerned about takeovers by

Chinese firms in Europe and the circumvention of existing rules; acquisitions of

smaller stakes in target enterprises; new threats in emerging sectors (e.g. artificial

intelligence, robotics, networks, quantum computing) and in relation to sensi-

tive personal information; new risks in more established sectors (e.g. real estate);

insufficient sanctions for breached obligations; and unduly short time frames for

conducting a thorough review of proposed transactions. This comes on top of

many perceived shortcomings of existing policies, revealed in policy practice and

the apprehension of new threats, most often associated with digital activities. The

recent proliferation of restrictive policies and reforms suggests broader views that

foreign investment may threaten national security (Pohl, 2019).

Therefore the major economic powers recently put in place policies that signal a

potential shift in their behaviour toward foreign countries70. The EU has joined

in by adopting the FDI Screening Regulation applicable as of 11 October 2020, although it remains the sole responsibility of the member states. In June, the

European Commission also adopted a white paper dealing with the distortions caused by foreign subsidies in the Single Market and is now seeking views and

input from all stakeholders (see Velten, 2020). The EU has approved a proposal

that expands the list of critical sectors to include infrastructure, biomedicine and

automobiles. It is also increasing its scrutiny of investments made with state influ-

ence or technology transfer to third countries. A »level playing field« is missing in

this area. In the current situation, China is exploiting the fact that the European

market is open to Chinese goods and investments, while European firms face sev-

eral limits on exports to and investments in China. To promote EU–China trade

relations, a progressive response should not aim to punish China, but to build fair

and just relations within the existing multilateral system. The progressive duty is

to re-regulate globalised capitalism so that globalisation serves democracy rather

than undermining it« (European Commission 2018a).

In March 2020, the EU also established additional FDI guidance. The aim was to

protect Europe’s strategic assets as the Covid pandemic highlighted the urgent

need to preserve healthcare capacities and related industries. In June 2020, the

Commission also published a white paper on levelling the playing field as regards

foreign subsidies in the single market, outlining several ‘modules’ to address the

distortive effects of foreign subsidies and fill legislative gaps. The Commission

70 See Ch. 2.4.

78

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

seeks to address subsidised acquisitions by including additional scrutiny of merger

reviews. The Commission’s proposed international procurement instrument also

seeks to establish fairer terms of trade for EU companies by encouraging trade

partners to adopt reciprocal market access for public procurement.

The EU Commission and member states will also consider other factors, including

whether: (i) the foreign investor is owned or controlled by a foreign government;

(ii) the foreign investor has already been involved in activities affecting security or

public order in a member state; and (iii) there is a serious risk that the foreign in-

vestor is engaging in illegal or criminal activities. In addition, the FDI Regulation

mandates member states that have adopted review mechanisms to assess potential

foreign takeovers of companies that may be involved in EU-funded projects or

programmes of Union interest. Such projects and programmes of Union inter-

est »involve a substantial amount or a significant share of Union funding« or are

covered by EU law regarding critical infrastructure, technologies or inputs that

are essential for security or public order. The FDI Regulation details eight of such

projects, including Horizon 2020, Copernicus and Trans-European Networks for

Transport (see Kirkland & Ellis, 2020).

The new Regulation related to inbound FDI adopted on Oct. 11 2020 became bind-

ing. It does not create a stand-alone mechanism to vet foreign investment akin to

the Committee on Foreign Investment in the USA (»CFIUS«) or the national se-

curity review systems established by individual member states71. Rather, the new

EU FDI regime establishes minimum standards for member states’ review sys-

tems, creates an information-sharing channel between the EU Commission and

the member states, and institutes a formal mechanism for the EU Commission and

the member states to provide feedback on FDI that occurs within the European

Union. The FDI Regulation does not require member states to implement FDI

reviews on the national level or screen particular types of investment. Member

states remain free to choose whether to adopt domestic review systems. Such FDI

Regulation requires member states that elect to implement a national security/

public interest screening system to meet certain minimum standards. For exam-

ple, all member states’ review mechanisms must establish transparent criteria that

»do not discriminate between third countries«, protect confidential information

and authorise third parties to seek recourse against the screening decisions made

71 The UK, for instance, introduced new legislation requiring companies to tell the government

about any planned transactions in 17 areas of the economy, focused on technology, including

categories as broad as »computing hardware«, AI, and data infrastructure. Britain’s new rules

look very similar to America's Foreign Investment Risk Review Modernisation Act (FIRRMA)

passed in 2018.

China in the Global Economy

79

by competent authorities. The FDI Regulation specifies il ustrative criteria that

the Commission and member states may consider while assessing the potential

effects of a foreign investment on security and public order, including:

• critical infrastructure;

• critical technologies (including dual-use technologies);

• the supply of critical inputs;

• access to sensitive information; and

• the freedom and pluralism of the media.

Irrespective of such conceptive, yet slow, efforts to establish a coherent European

strategy on FDI, China has managed to get its foot in the door in a variety of

European capitals, trying to pit European countries against each other (also see

Ch. 6), competing for Chinese inward FDI (particularly during the GR). Britain,

while still part of the EU, literal y rolled out the red carpet for Chinese investment,

and over the past 5 years has sought to ingratiate itself with Beijing, only starting

to reverse course recently. In other parts of Europe, big Chinese investments in

ports, railroads, telecommunications, and the power grid offered countries like

Greece, Italy and Portugal much-needed investment – and China a measure of its

influence inside the now 27-nation bloc. Italy even formal y signed on to China’s trillion-dol ar »Belt and Road« programme of infrastructure investment and,

even at the height of the COVID-19 pandemic, has sought to deepen its relationship with Beijing. Yet this deepening of economic ties between the two also bred

suspicion and concern that China is snapping up some of Europe’s crown jewels.

Leaders in France and Germany, in particular, are worried that China’s acquisi-

tions of key companies could undermine national security. Countries across the

EU have also been torn over whether and how much to allow China’s Huawei to

participate in the development of advanced, fifth-generation mobile phone net-

works72. The EU’s plan to treat foreign industrial subsidies with the same strict

rules as the bloc applies internal y to illegal state aid is just the latest sign that

China’s state-led economic model has pushed Europe’s patience too far (see

European Commission, 2019).

On China’s side, a new investment law was adopted on 15 published 2019, taking

effect in January 2020, that creates a general framework for FDI in China. It marks

a milestone in a 40-year policy process through which China has opened itself

up to the outside world, while incremental y adopting international standards to

drive domestic reform. It also signals a new stage of increasingly difficult and sub-

stantive reforms (for more, see Ch. 2.4.1).

72 See the different approaches taken by CEECs in Ch. 6.

80

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

In 2020 the EU–China 2020 Strategic Agenda for Cooperation became the central framework for the EU’s long-term bilateral relations with China. Parties agreed

already in 2013 to negotiate a Comprehensive Agreement on Investment (CAI)

to level the playing field and improve the protection of investments and boosting

market access. CAI would go beyond a traditional investment protection agree-

ment to cover market access for investment and several important disciplines. It

would also include provisions on sustainable development and dispute resolution.

The aim is to provide investors on both sides with predictable, long-term access to

both the EU and Chinese markets and to protect investors and their investments.

Somehow unexpectedly EU and China has agreed on the CAI as »the most ambi-

tious agreement that China has ever concluded with a third country« already in

2020, December 31st. It goes beyond traditional approach including many new

issues like labour standards, environmental issues and incudes also important im-

plementation and monitoring mechanisms. The speed in concluding the agree-

ment could be regarded as part of EU strategic autonomy strategy vis a vis all

other major powers and, perhaps a result, Germany wanted to show as one among

achievements of its presidency, not least, driven by the interests of German auto

makers operating in China. J. Biden idea was different, to sign a joint agreement

with China. »The conclusion of the CAI is a symbol of maturity of China-EU

international relations and that no third party, including the United States, could

meddle with this bilateral relationship as both the EU and China are concerned in

forging mutual y beneficial arrangement, not scoring political points« claim Kong

Qingjiang (2021) the dean of the School of International Law at the China University

of Political Science and Law. The CAI will ensure that EU investors achieve better

access to a fast growing 1.4 billion consumer market, and that they compete on a

better level playing field in China. This is important for the global competitiveness

and the future growth of EU industry.

The Comprehensive Agreement on Investment (CAI), aimed at improving the

protection of investments, establishing a level playing field, and boosting market

access negotiations, was launched by the EU already in 2013. The aim has been to

provide investors on both sides with predictable, long-term access to the EU and

Chinese markets and to protect investors and their investments.

Here are the key elements of the EU-China Comprehensive Agreement

on Investment73 that still had to be ratified by both sides by the end of 2021:

73 Based on: Key elements of the EU-China Comprehensive Agreement on Investment – The

European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs,

Business & Technology) europeansting.com.

China in the Global Economy

81

Ambitious opening by China to European investments

The CAI binds China’s liberalisation of investments over the last 20 years and, in

that way, it prevents backsliding. This makes the conditions of market access for EU

companies clear and independent of China’s internal policies. It also al ows the EU

to resort to the dispute resolution mechanism in the case of breached commitments.

The EU has negotiated further new market access openings and commitments such

as the elimination of quantitative restrictions, equity caps or joint venture require-

ments in several sectors. EU sensitivities, such as in the fields of energy, agriculture,

fisheries, audio-visual, public services, etc. are all preserved in the CAI.

Examples of market access commitments by China:

Manufacturing: China has made comprehensive commitments with only very limi-

ted exclusions (in particular, in sectors with significant overcapacity). Roughly half

of EU FDI is in the manufacturing sector (e.g. transport and telecommunications

equipment, chemicals, health equipment etc.). China has not made such far-reaching

market access commitments with any other partner.

Automotive sector: China has agreed to remove and phase-out joint venture require-

ments. China will commit market access for new energy vehicles.

Financial services: China had already started the process of gradual y liberaliding

the financial services sector and will grant and commit to keep that open to EU in-

vestors. Joint venture requirements and foreign equity caps have been removed for

banking, trading in securities and insurance (including reinsurance), as well as asset

management.

Health (private hospitals): China will offer new market opening by lifting joint ven-

ture requirements for private hospitals in key Chinese cities, including Beijing, Shan-

ghai, Tianjian, Guangzhou and Shenzhen.

R&D (biological resources): China has not previously committed to openness to fo-

reign investment in R&D in biological resources. China has agreed not to introduce

new restrictions and to give to the EU any lifting of current restrictions in this area

that may happen in the future.

Telecommunication/Cloud services: China has agreed to lift the investment ban for

cloud services. They will now be open to EU investors subject to a 50% equity cap.

Computer services: China has agreed to bind market access for computer services – a

significant improvement from the current situation. Also, China will include a ‘tech-

nology neutrality’ clause to ensure that equity caps imposed for value-added telecom

services will not be applied to other services such as financial, logistics, medical etc.

if offered online.

International maritime transport: China will al ow investment in the relevant

land-based auxiliary activities, enabling EU companies to invest without restriction

in cargo-handling, container depots and stations, maritime agencies, etc. This will

82

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

al ow EU companies to organise a full range of multi-modal door-to-door transport,

including the domestic leg of international maritime transport.

Air transport-related services: While the CAI does not address traffic rights because they are subject to separate aviation agreements, China will open up in the key areas

of computer reservation systems, ground handling and sel ing and marketing services.

China has also removed its minimum capital requirement for rental and leasing of

aircraft without crew, going beyond the GATS.

Business services: China will eliminate joint venture requirements in real estate services, rental and leasing services, repair and maintenance for transport, advertising,

market research, management consulting and translation services, etc.

Environmental services: China will remove joint venture requirements for enviro-

nmental services such as sewage, noise abatement, solid waste disposal, cleaning of

exhaust gases, nature and landscape protection, sanitations and other environmental

services.

Construction services: China will eliminate the project limitations currently reser-

ved in its GATS commitments.

Employees of EU investors: Managers and specialists of EU companies will be al-

lowed to work for up to 3 years in Chinese subsidiaries, without restrictions such as

labour market tests or quotas. Representatives of EU investors will be al owed to visit

freely prior to making an investment.

Improving level playing field – making investment fairer

State-owned enterprises (SOEs) – The CAI seeks to discipline the behaviour of SOEs by requiring them to act according to commercial considerations and not to

discriminate in their purchases and sales of goods or services. Importantly, China

also undertakes the obligation to provide, upon request, specific information to al ow

for the assessment of whether the behaviour of a specific enterprise complies with

the agreed CAI obligations. If the problem goes unresolved, one can resort to dispute

resolution under the CAI.

Transparency in subsidies – The CAI fil s one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the

CAI obliges China to engage in consultations in order to provide additional informa-

tion on subsidies that could have a negative effect on the investment interests of the

EU. China is also obliged to engage in consultations with a view to seeking to address

such negative effects.

Forced technology transfers – The CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to

transfer technology to a joint venture partner, as well as prohibitions to interfere in

contractual freedom in technology licencing. These rules would also include discipli-

China in the Global Economy

83

nes on the protection of confidential business information collected by administrative

bodies (for instance in the process of certification of a good or a service) from una-

uthorised disclosure.

Standard setting, authorisations, transparency. China will provide equal access

to standard setting bodies for our companies. China will also enhance transparency,

predictability and fairness in authorisations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in

competition cases.

Embedding sustainable development in our investment relationship

• In contrast to other agreements concluded by China, the CAI binds the parties

within a value-based investment relationship grounded on sustainable deve-

lopment principles. The relevant provisions are subject to a specifical y tailored

implementation mechanism to address differences with a high degree of transpa-

rency and participation of civil society.

• China commits, in the areas of labour and environment, not to lower the stan-

dards of protection in order to attract investment, not to use labour and enviro-

nment standards for protectionist purposes, as well as to respect its international

obligations in the relevant treaties. China will support the uptake of corporate

social responsibility by its companies.

• Importantly, the CAI also includes commitments on environment and climate,

including to effectively implement the Paris Agreement on climate.

• China also commits to working towards ratification of the outstanding ILO (In-

ternational Labour Organisation) fundamental Conventions and takes specific

commitments in relation to the two ILO fundamental Conventions on forced

labour that it has not ratified yet.

Monitoring of implementation and dispute settlement

• In the CAI, China agrees to an enforcement mechanism (state-to-state dispute

settlement), as in our trade agreements.

• This will be coupled with a monitoring mechanism in the pre-litigation phase

established at the political level, which will al ow us to raise problems as they

arise (including via an urgent procedure).

It is still too early to assess the agreement, particularly since ratification in the

European parliament is still pending. Nevertheless, according to Godemen (2021)

it seems that »the EU-China CAI has been oversold. /…/ Defenders of the deal ar-

gue it is the best that Europe could possibly get, in a short window of political op-

portunity« 74. Others argue that China obtained an implicit commitment that the

EU will not restrain Chinese FDI in the EU while the EU got results more on pa-

74 The European Chamber of Commerce in China, the European Services Forum and Business

Europe have welcomed the deal (European Parliament, 2021b, 9).





84

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

per while the real outcome will depend on the implementation75. And China’s

record in this regard has not been too encouraging thus far. »China has made

minor sectoral openings on investment, concessions in principle – national treat-

ment, inclusion of state firms, transparency of subsidies, banning forced technol-

ogy transfer, committing to move towards the ILO convention on forced labour.

/…/Given China’s track record, it is impossible to rely on goodwill to implement

commitments and unwise to believe that on key issues, a top-down political pro-

cess between both parties can be substituted to legal arbitration« (ibid., 2021).

2.7.5. Fifth-generation technology network standard

One of the core objectives of the new European Commission is to create a »Europe

fit for the digital age«, especial y in view of the fact that »new technologies have

kept our businesses and public services running, and made sure that trade could

continue flowing« (European Commission, 2020f, 8). The fifth-generation (5G)

mobile telecommunications networks planned across the EU over the coming

years have triggered a highly politicised debate as to whether the use of Chinese

5G equipment in critical EU infrastructure poses a threat to security (European

Parliament, 2020a, 6). This issue is very complex not only technology related but

is a wider social problem and not only associated with China. Yes, »China’s estab-

lishment of an AI-driven surveil ance structure and its Leninist social scorecard

raise questions as to the degree technology should be used to ‘manage’ the social

order, enable stability and achieve welfare for al . But, the Cambridge Analytica

scandal, WikiLeaks and the emergence of the new post-truth, fake-news world

show some of the underlying forces at work also in the global West« (Rašković et

al., 2019, 346). Europe cannot delay the digital transformation enabled by 5G if

it wants to retain and enhance its competitiveness. Europeans, particularly Spain,

have thus far relied much on Chinese technology for 4G (mainly Huawei, but also

ZTE). They were heading in the same 5G direction since the cost differences were

significant. Late in the game, however, the USA – which itself did not have com-

panies involved in making 5G equipment – perceived a security and economic

threat from such reliance on Chinese technology. The pressure of the USA was

somewhat successful (Ortega, in Hobbs, 2020, 39–40) because the EU has begun

to SET harmonise its policy in the area.

75 Bruegel analyst Alicia García-Herrero considers the CAI disappointing. Clingendael analysts

Maaike Okano-Heijmans and Ingrid d'Hooghe claim that the EU would lose leverage vis-à-

vis China owing to the CAI, and that it would be drawn into greater dependence on China.

NGOs, has launched a joint appeal to the EU for the inclusion of a human rights clause in the

CAI, and the requirement, for China to ratify four ILO core conventions before ‘entering’ the

agreement (European Parliament, 2021b, 10–11).

China in the Global Economy

85

There are three major concerns in the EU. The first is the growing sense of a ‘neo-

colonial’ dependence on American Internet companies76; the second is security

concerns related to Huawei as a 5G provider77; and the third, harmonising the

different member countries’ approaches to the subject. Differences are found as

much among the old as the new members (see Ch. 6). Fourth, we can add the

concern regarding unfair competition in view of China’s substantial government

support for Huawei78. European efforts to, for example, impose a digital tax, fine

America’s big tech companies for anti-competitive practices, and consider new

industrial policies to foster European champions in crucial areas all reflect this

growing discomfort. This reliance on the USA, at least so far, far exceeds Europe’s

digital dependence on China. Nevertheless, the wariness concerning China as

both an economic and political competitor in the digital realm is growing. It

is therefore not surprising that the EU Commission has recommended the EU

member states to exclude »high-risk« suppliers from their networks.

76 Whilst ever America’s Qualcomm dominated the market, monopoly was not a problem.

When Huawei started to be number 1 in this area, it became a security threat even though

5G is only infrastructure while operation depends on the operators, on the applications/pro-

grams (the hardware is Chinese but the software is American). Operators can use or misuse

the system (see Svetličič, 2020b). Technology provides the options; society chooses the future

and actively shapes it.

77 Huawei is accused of being forced to obey the National Intelligence Law and Cybersecurity

Law, to transmit data to the government. But according to a Chinese professor in cybersecurity law, Shenkuo Wu, it is stipulated that such obligations should only be fulfilled by ICT

companies directly operating on Chinese territory rather than their overseas subsidiaries.

Clifford Chance, a global law firm headquartered in London, also concluded that »nowhere does Chinese law give Beijing the authority to compel telecommunication equipment firms to

install backdoors or listening devices – or to engage in any behaviour that might compromise

network security. The next one suggests Huawei’s close connection with the government be-

cause of the military background of its founder, Ren Zhengfei, and some other employees. It

is also a common practice in other countries to hire such young retired personnel, without

being accused of doing so. The above facts highlight the possibility that Chinese nationality is now the original sin of a company due to the heightened geopolitical tensions (see Jinghua, 78 The accusation is that the Chinese government has given Huawei as much as USD 75 billion

in subsidies, which gives it incomparable advantages in the 5G market. However, audited

data shows that in the 10 years from 2009 to 2018, the total amount of direct grants Huawei received from the Chinese government – mostly by way R&D incentives – was just 0.3% of

Huawei’s total sales of USD 514 billion over the same period. The high investment volume

by Huawei in R&D, USD 15 billion in 2018, apparently contributed more to its success (see

Jinghuan 1999, the CIA, for instance, created In-Q-Tel as an independent, not-for-profit firm (???, op. SM) that invests in technology start-ups which serve the national interest. One early

recipient of In-Q-Tel’s investment was Keyhole, which became the platform for Google Earth.

Now also funded by the Department of Homeland Security, the Department of Defence, and

other US agencies, In-Q-Tel identifies and adapts innovative technologies for its government

customers (Darby, 2021).

86

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

However, the problem is that European 5G suppliers are technological y behind

Huawei and costlier. »The costs of ditching Huawei are high79, risking on becom-

ing dependent on two firms, Nokia and Eriksson (danger of duopoly!!), the other

main suppliers of 5G« (The Economist, 2020, Nov.7, 15). South Korea’s Samsung

is another contender (Hobbs, 2020, 40). Although from a digital sovereignty

perspective the USA is the biggest problem, China has become Europe’s biggest

fear. For one, because China is increasingly interested in the European market

and has persistently been moving up the value chain. But, as Oertel noted, the

Chinese have begun to wear out their welcome in Europe. The European–Chinese

relationship was deteriorating rapidly even before China’s aggressive diplomacy

during the Covid crisis added to its troubles. Chinese finance and equipment re-

main attractive and cheap. Yet new efforts at investment protection and recent

attempts in the UK and Germany to revisit the issue of allowing Huawei equip-

ment into the 5G network, for example, demonstrate the heightened concern that

China may threaten European digital sovereignty (Shapiro, in Hobbs, 2020, 10).

The nationwide introduction of 5G with up to 600,000 base stations announced

in late March 2020 could give Chinese companies a huge competitive advantage

over their rivals in their push to digitalise the economy. And more is set to come:

China is to spend USD 1.4 trillion on boosting its tech sector over the next 5 years

(Oertel, in Hobbs, 2020, 26).

A Chinese company is perceived as a different company than a Western one and

thus represents a different security threat in certain Western eyes. Stil , »Snowden’s

revelations facilitated the public opinion of Europe to believe that, since everyone

hacks, it does not real y make a difference who to trust, especial y in the absence

of concrete proof that the Chinese government used its ascendancy over Huawei

and ZTE to hack data« (Rugge, 2020).

Nevertheless, early in 2020 the Commission published the »EU Toolbox«, a set

of measures developed to mitigate the cybersecurity risks of 5G networks identi-

fied at national and EU levels; it was backed by a Communication which requires

all member states to take steps to implement the measures recommended in the

79 The Oxford Economics' study commissioned by Huawei finds »that in 2019, Huawei

supported a total contribution to European GDP of €16.4 billion. This total is made up of

three channels of impact. A direct contribution of €2.8 billion—generated by Huawei’s own

European operations, which (for the purposes of this study) include the EU-27, the United

Kingdom, Iceland, Switzerland, and Norway. An indirect contribution of €7.3 billion—

stimulated through the procurement of European goods and services by Huawei’s worldwide

operations. And final y induced contribution of €6.3 billion—generated by Huawei staff and

all employees in Huawei’s European supply chain, as they spend their wages in the wider

economy on activities such as retail, leisure, and healthcare (2020, 4).





China in the Global Economy

87

Toolbox by 30 April 2020. Its goal is to create a robust, coherent and objective

framework of security measures on both strategic and technical levels in order

to ensure an adequate level of cybersecurity of 5G networks across the EU. Major

objectives of the EU are to achieve a shared strategic view and a coordinated ap-

proach among the member states, »emphasising the importance of safeguarding

the integrity, security and resilience of critical infrastructures, electronic commu-

nications networks, services and terminal equipment« and supporting »the need

to ensure and implement a coordinated approach to mitigate the main risks, such

as the ongoing joint work based on the EU Toolbox on 5G cybersecurity and the

secure 5G deployment in the EU« (Giustozzi, 2020)

2.7.6. Concluding remarks

Any successful cooperation is based on common interests and on all parties,

particularly by being able to bring about win-win solutions. So it is in the case

of China, despite the recent more assertive approaches to such cooperation on

both sides. While China has always been very strong in following it interests, the

EU has only recently become more pragmatic and aggressive by starting to view

China as a »systemic rival«. Yet this does not necessarily mean that both actors

are always strategic rivals or competitors. »China is, simultaneously, in different

policy areas, a cooperation partner with whom the EU has closely aligned objec-

tives, a negotiating partner with whom the EU needs to find a balance of interests,

an economic competitor in the pursuit of technological leadership, and a systemic

rival promoting alternative models of governance« (Berkovsky, 2020, 104). Both

parties share many common ideas about the totality of international cooperation,

like the global multilateral economic system, sustainable development, and the

2030 Agenda, climate change, public health etc. However, this implies that the

EU’s policy on China must transform further from being more reactive and defen-

sive into a more proactive, agenda-setting ‘realpolitik’ strategy. Szczudlik (2020)

claims that »after effectively introducing a set of measures to protect ourselves,

there would be a time for the EU to work on an active agenda, since China has be-

come an important actor in Europe, has become a European power«. »Europe thus

needs to engage in a mature and meaningful debate about the growing influence

of China’s power, which goes beyond simple divisions between friend/foe, rival/

al y, because we live in a complex world and interlocutors can simultaneously per-

form several contradictory roles« (Smotrytska, 2020).





88

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

3. SLOVENIA-CHINA BILATERAL RELATIONS

3.1. SHORT HISTORY OF BILATERAL COOPERATION

The early roots of Slovenia–China relations can be traced back to the 18th century

and the activities of the Jesuit Ferdinand Halerstein80, a Slovenian astronomer and

mathematician, who made important contributions to the development of sci-

ence and astronomy in both China and Korea. He held a remarkable position in

Beijing, acting as the Head of the Imperial Board of Astronomy from 1746 until

his death in 1774, and holding a historic role as a cultural link between Europe

and China. He arrived in Beijing in 1739, while in 1746 he was appointed to suc-

ceed Ignatius Kögler as Head of the Imperial Board of Astronomy, a position he

held until his own death nearly 30 years later. In the court of Emperor Qianlong,

he was appointed to the very high status of mandarin of the third rank. He was

also a corresponding member of the Royal Societies of London, Paris and St.

Petersburg. Among others, he elaborated a map of China in the world (see Saje

2015; Vampelj-Suhadolnik 2015, 3).

Another historical ‘connection’ between the two nations was the Boxer Rebellion

(1900) that caught the attention of the Slovenians, who »understood the essence of

the events unfolding in China at the turn of the 20th century when China was de-

fending itself from foreign colonial aggressors that had forced on it a capitulation

and tried to break its tradition of statehood and undermine thousands of years of

culture, while also forcing a new religion on it. Independence and nation-building

were extremely important for both nations. »All leading Slovenian newspapers

of the time openly sided with the Chinese in its defence against foreign colonial

aggressors under the slogan »China to the Chinese», not for the American and

British merchants. Not surprisingly, they found themselves in the same boat, a boat

guided by the self-determination of nations and having cut anchor from the old

imperialistic practices – a boat to be led by US President Wilson at the Paris Peace

Conference at the end of the First World War« (see Lipušček 2013, 47 and 48).

80 Chinese name Liu Songling.



Slovenia-China bilateral relations

89

As part of Yugoslavia, Slovenia started to cooperate with China soon after Yugoslavia

recognised China in 1949, although the latter, due to the INFORMBIRO81 policy,

did not recognise Yugoslavia until 1954 or, more properly, 1955 when diplomatic

relations were established. In 1958, China’s foreign policy changed and relations

deteriorated so badly that the ambassadors were recalled. Relations remained on

ice until 1969. Normalisation started in 1970 when the Slovenian sinologist Vinko

Trček commenced his advisory position in the Yugoslav Embassy (1970–1974) in

Beijing.

Unfortunately, after the Tiananmen incident in 197682, which is not the better

known Tiananmen Massacre of 198983, relations once again deteriorated, only to

be strengthened after the death of Mao Zedong. Doors were opened for the visit

of President Tito in China in 1977 and continued with President Hua Guofeng’s

very important visit to Yugoslavia in 1978, laying the foundations for the future

relationship between the two countries. He explicitly wished to visit the most de-

veloped country within the socialist group of countries. After his visit, a consider-

able number of industrial cooperation projects began84.

81 Abbreviation of the “Communist Information Bureau” dominated by the Soviet Communist

Party. In 1948, Yugoslavia started on a more independent policy, strengthening its cooperation

with the West and moving away from Soviet ideological domination. The conflict with the

Soviet Union, referred to usual y as INFORMBIRO, was a consequence.

82 On the night of 4 April 1976, people laid thousands of wreaths to honour the death of the

great leader Zhou Enlai. The Gang of Four was afraid of the movement of these people so they

had banned any organisation of people on the square. Thousands of people ignored this threat

and came anyway on 5 April in a spontaneous demonstration against the radical leaders.

Crowds reached more than 100,000, becoming outraged by the removal of the wreaths by

the government. Although there was some violence, it was minimal because many of the

police were sympathetic with the people. The incident was labelled counterrevolutionary and

blamed on Deng Xiaping by the radical government leaders (see https://academic.mu.edu/

meissnerd/tiananmen-76.htm).

83 It happened 30 years ago when the Chinese government forcibly suppressed student-led

demonstrations calling for free speech, some democracy and a continuation of the reforms

started by Deng Xiaoping, who wanted to see China grow prosperous by embracing some

pro-market liberalisation. Military troops armed with assault rifles and tanks fired at the

demonstrators trying to block the military's advance towards Tiananmen Square. Estimates of

the death toll vary from several hundreds to 2,600, with several more thousands of wounded.

The protests first began in April, triggered by the death of former Chinese Communist Party

leader Hu Yaobang, seen by the public as a champion of liberalisation.

84 For instance: i) installing traffic signals at 57 of the most important crossings in Beijing. This USD 2 million worth deal was obtained in 1987 in competition with Siemens, Ericson, two

Japanese and one American corporation. Iskra Avtomatika equipped all major transport

hubs in Beijing with traffic lights, and micro motors for refrigerators (Rotomatika). Many

90

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The most interesting project was Iskra Delta’s computer network for the Chinese

police. The system was noticed by the Chinese at the Zagreb Fair. Delta com-

puters were then being manufactured using US-made processors. The Chinese

believed they could get hold of this modern information technology from a high-

tech Yugoslav company that relied on US-made processors, which they could not

otherwise buy directly from the USA due to the embargo. Therefore, they invited

the Interior Minister of Yugoslavia Stane Dolanc for a visit. The result was an

agreement on cooperation of the police of both countries, mentioning Iskra Delta

as the executor of the project. The director of Iskra Delta, J. Škrubej, insisted they

could only carry out such a computer project with the approval of the USA85. The

Yugoslav government therefore sent a delegation to the United States to convince

the Americans to allow their processors to be used in the building of a computer

network in China. Under special conditions, they decided to allow the export of

processors to China. This meant the demanding Milliard project, as it was called,

could begin, to the great satisfaction of the Chinese. The project of building a

computer network for the Chinese police could not completely be kept a secret

from other countries of the communist bloc, that also sought to acquire American

information technology. In 1988, a Soviet delegation led by Mikhail Gorbachev

visited Slovenia with just one thing in mind: could a Slovenian computer com-

pany possibly assist it in getting its hands such computer technology (for more,

see Škrubej 2013).

The biggest problem at that time was payments. Only for a very few deals were the

Chinese willing to pay in hard currency. The majority of the deals took the form

of barter or compensation arrangements. China’s new open door policy launched

in 1978 along with its economic reforms opened the gates for the cooperation of

Yugoslav republics with Chinese provinces. Already in 1982 Ljubljanska Banka

opened the representative office in Singapore covering South-East Asia. Three

years later South Korea and Australia was added to the portfolio. Slovene Ivan

Rudolf, led the office from 1985 to 1991. In addition, Ljubljanska banka also had,

jointly with Beograjska banka, a representative office in Bejing. Opening a repre-

sentative office also in Tokio in 1987 demonstrates that Ljubljanska Banka was an

early bird in opening China «doors« for bilateral cooperation. Unfortunately, all

opportunities were missed despite the good political relations and own shortcomings,

including technological problems (interview with V. Lukanc).

85 The export of Western computer technology was namely prohibited to socialist countries

under the Coordinating Committee for Multilateral Export Controls (CoCom) rules during

the Cold War to put an arms embargo on COMECON countries. CoCom ceased to function

on 31 March 1994 (see Yasuhara 1991).



Slovenia-China bilateral relations

91

these offices were closed in 1992, because either follow up economic cooperation

nor political cooperation have not backed such a business network abroad.

Soon after Hua Guofeng’s visit, a consortium of Slovenian companies seek-

ing cooperation with China was established (Koto, Tehnoimpeks, Kovinotehna,

Jugotekstil, Lesnina, Slovenijales, Iskra, Emona and Ljubljana Banka; later Smelt86

and other firms). This consortium was replaced in 1989 by a joint representa-

tive office of Kovinotehna, Jugotehnika and Lesnina in Beijing. Economic coop-

eration was thereby facilitated, leading to quite a number of deals. For instance,

Lesnina built two furniture factories in Manchuria and Sichuan. The mentioned

representative office was later taken over by Kovinotehna, which had inherited

Kovinotrade. In terms of size, Smelt’s business was the largest: it set up an oil re-

finery in Guangdong province (1985–1990) and built a titanium dioxide factory

in the province of Gansu (1988). Iskra was intensively involved in the Chinese

market between 1983 and 1990, mostly in the form of long-term cooperation.

In 1990, Iskra moved its Beijing office to Hong Kong, to take care of the Chinese

market. More important investment projects in China were conducted by Emona

(two poultry farms), Gorenje (refrigerator factory), Kostroj (leather goods), IKOS

(reconstruction of a shoe factory), Krka (development anti-malaria medicines)

and Adria Airways with the Sichuan province to train pilots and airport staff. In

1977, Ljubljanska Banka opened an account with the Bank of China to facilitate

payment transactions with China (see Čeplak Mencin et al. 2012, 184).

During the 1980s, Slovenia became the strongest economic partner of China

from Yugoslavia. The Centre for Cooperation with Developing Countries87 sys-

tematical y analysed the China market. Between 1986 and 1987, it also published

a special Bulletin on China and in 1986 it organised the first China–Yugoslavia

business conference. At the Chamber of Economy, a trade section on cooperation

with China was established, with 67 firms as members. Slovenia’s share in bilat-

eral relations was the highest at around 60% of all Yugoslav industrial projects

in China. Hence, it was no surprise that Chinese President Jiang Zemin came to

visit Slovenia as a party representative in the 1980s. Chinese Prime Minister Zhao

Ziyang stated during his visit to Slovenia in 1986 that Slovenia and the province

of Sichuan are an example of successful cooperation.

86 They even had a representative office in Beijing (late 1980s) with very efficient representative Vladimir Gašparič who later became a head of Commercial diplomacy in Ministry of foreign

affairs and in such a way applied his profound knowledge about China.

87 In the mid-1980s, the Centre also organised training for China’s high officials on the special Yugoslav form of joint ventures financed by the International Finance Corporation. In their

opening up policy, they were so systematic that they studied all different forms of FDI,

including the quasi-equity type of joint ventures that Yugoslavia introduced in 1967.





92

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

However, cooperation started to stagnate afterwards due to the crisis of the

Chinese economy and financial (payments) problems related to the business done

by way of mutual compensation. The penultimate Slovenian-born Ambassador

of Yugoslavia in China (1985–1990), Zvone Dragan, was very active in stimu-

lating bilateral cooperation. The Embassy had two economic counsellors, apart

from a representative office of the Federal Chamber of the Economy. Dragan was

also instrumental in organising a visit by Prime Minister of Yugoslav Republic

Slovenia Šinigoj to China at the time and later, after returning home, a visit by

Foreign Minister of Slovenia Rupel to Beijing (February 1992). He was received by

Chinese Foreign Minister Qian, which was quite exceptional since China was op-

posed to the disintegration of Yugoslavia. This visit was instrumental to ensuring

China’s official recognition of the Republic of Slovenia 3 months later.

The cooperation was not limited to economics. Cultural and scientific coopera-

tion swiftly developed in early Yugoslav times. The first cultural exchange came

in 1956 when the Slovenian Octet (group of singers) visited China and a Chinese

circus came to Ljubljana (Čeplak Mencin et al. 2012, 173). Later on, the driv-

ing force in greater links with China began at the Faculty of Arts with the in-

troduction of Sinology studies in 199588, culminating in 2010 with a Confucius

Institute being established in Ljubljana at the Faculty of Economics. The Chinese

Government accepted the proposal of Slovenian President Danilo Turk while on

a visit to Beijing in 2007 to establish a lectorate (department) of the Slovenian

language in one Chinese university. The Lectorate for Slovenian Language at the

University for Foreign Studies in Beijing was the outcome of this initiative, com-

menced the next academic year with the Slovenian language as a major course.

At present, Slovenian language courses also exist at the Beijing International

Studies University and the Hebei International Studies University. Learning of

the Slovenian language at some universities in China, and the Chinese language

in Slovenia, are important signs of possibilities for more successful cooperation in

the future since knowledge of the local language in China is extremely important.

3.2. SLOVENIAN ATTITUDES TO COOPERATION WITH CHINA

Not so much is known about China in Slovenia general y, although many firms

that cooperate with China hold better knowledge and experiences due to their

88 Teaching on China and Chinese language started much earlier, but was real y strengthened by

the establishment of an Asian Studies department in 1995.



Slovenia-China bilateral relations

93

early cooperation with Chinese firms and the growing number of students who

have studied Sinology at the Faculty of Arts since 1995.

While general public support for cooperation with China has been strengthening,

some reservations remain when it comes to a more developed form of coopera-

tion like FDI or Chinese firms undertaking large infrastructural projects. This is

not surprising as Slovenian public opinion regarding FDI general y is not overly

friendly. According to an Epicenter public opinion poll in 2015, more Slovenians

have a negative than a positive view on China (52% vs. 45%), largely due to the

country’s exploitation of cheap labour, its political regime, expansion to foreign

markets and human rights violations. Stil , almost one-third admires China’s eco-

nomic development (Makovec, 2015).

More precise future-looking attitudes concerning China are revealed in a sur-

vey conducted by Raskovic among Slovenian Millennials89. They general y hold a

positive attitude to China (over 80%), seeing it as a global superpower, a civilised,

friendly and developed nation, which can (to some degree) also be seen as an

al y. Yet, one can assume that Millennials are not total y representative of general

public opinion. They are, by definition, more liberal, more open-minded and less

pass-dependent. The survey results show that awareness and familiarity with the

One Belt and One Road Initiative (OBOR) and the 16+1 China–CEECs coopera-

tion initiative remains quite low in Slovenia. Despite hardly knowing about the

16+1 China–CEE cooperation initiative or the OBOR, the respondents evaluated

the current level of cooperation with China as good, and show a general interest in

China-related issues and topics. Most respondents see the OBOR as a platform for

strengthening foreign trade, international relations and attract FDI into Slovenia

from China. Surprisingly, infrastructure, connectivity and logistics rank some-

where in the middle. There is, however, overwhelming support for selected infra-

structure projects from the Chinese in Slovenia, first and foremost in Ljubljana’s

train and bus station. The majority of respondents do not support the acquisition

89 The survey and study were conducted in November 2017, ahead of the 16+1 China-CEE high-

level meeting in Budapest, among Millennials (born in the 1980s and 1990s) in Slovenia,

students of either business and economics, or international relations studying at the University of Ljubljana. The analysed sample included 293 university students. The respondents’ mean

age was slightly below 25 years, 59% of the respondents were female and 37% had already

been to China. The educational background of the students was quite balanced in terms of

business and management studies vs. international relations. This segment of the population

was deliberately selected because Millennials represent future businesspersons, policymakers

and leaders who will shape the further development of China–CEE cooperation and the

next-stage implementation of OBOR projects in CEE. They are also a good and ‘neutral’

yardstick for measuring stereotypes, perceptions and attitudes in social psychology, as well as

international business and relations (Rašković, 2018; Rašković & Vuckovski, 2016).





94

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

of either Slovenia’s biggest bank (Nova Ljubljanska Banka) or its biggest retailer

(Mercator) by the Chinese, indicating limited support for investments in the pri-

vate sector in Slovenia, despite the recent billion-dol ar acquisition of Outfit7 by

the Chinese in January 2017 by the United Luck Consortium which was then sold

to Zhejiang Jinke for over USD 1 billion (for more on this, see below). Our results

show much work remains in raising awareness related to the OBOR and the 16+1

China–CEE cooperation initiative in Slovenia. While the biggest opportunities in

strengthening China–Slovenian relations lie in the areas of trade, international

relations, and FDI, there is considerable public support for Chinese investments

in selected infrastructure projects. Still these should be well targeted and avoid

acquisitions in the private sector regarding which public opinion is much more

reserved. Interestingly, a large share of respondents does not believe that China

has an appropriate media image (Raskovic, 2018, 11).

Like in many other CECs90, the majority of reports and analyses in Slovenian me-

dia about China are quite negative, consistent with the attitude found in the EU

and especial y in US corporate media. Looking at China trough Western lances, ig-

noring the rich historical context of China development and the specific context, is

inadequate. Particularly in view of the deep crises these societies, especial y US, are

facing now. More analytical, in depth coverage of the developments, economic and

political, inside China, about regional developments is missing. The exceptions are

newspaper DELO where Zorana Rašković is real y qualitatively reporting about

the developments in China and Radio Slovenia having its own correspondent in

China. Like majority of Slovenian politicians91, leading Slovenian media editors are

also not aware of more and more decisive influence of China in the world.

3.3. SLOVENIA FOREIGN POLICY RELATIONS WITH CHINA

After the country became independent in 1991, the first priority of Slovenian for-

eign policy was international recognition of the new state and its integration into

all major international organisations. In 1992, Slovenia became a member of the

90 Analysis of almost 4,000 Slovak and Czech articles revealed significant differences in the

sentiment of the discourse and the topics covered: 70% of Slovak articles were neutral in their

views on China, 25% of articles were negative while 5% had a positive outlook. By comparison,

only around 40% of Czech articles covered China neutral y and 45% framed China negatively

(Šimalšik 2018).

91 President Pahor did not include China among the most important non-EU and NATO

partners of Slovenia in his lecture given to the diplomatic core in 2014. Because he mentioned

India and Japan, the Chinese ambassador left the event.



Slovenia-China bilateral relations

95

United Nations. By becoming a UN Security Council member (non-permanent

seat from 1998 to 1999), Slovenia was able to realise one of its priorities: to become

important player in international relations. Its second priority was to join both EU

and NATO92. The third foreign policy priority was to get away from the Balkans, to

dissociate from it. This orientation seen between 1992 and 1998 was later gradu-

al y changed to back to the Balkans (1999–2004), a more inclusive (creative) way

of thinking about this region. Ironical y, the very same Euro-Atlantic external

foreign policy environment that Slovenia wished to come closer to by losing its

Balkan identity and connections had pushed Slovenia to completely alter the idea

and turn its foreign policy ‘back to the (Western) Balkans’ in 1998. Following EU

and NATO accession (2004), Slovenia again found itself in a vacuum. The ini-

tial away from the Balkan strategy of Slovenia was changed during the country’s

presidency of the EU Council in 2008 when the Western Balkans appeared to be a

specific contribution the Slovenian presidency could make (Bojinović and Šabič,

2017, 53–55; Bojinović and Požgan, 2013). Even today, as Slovenia is preparing

for its second EU Council presidency, the draft ‘Trio Programme’ features the

Western Balkans as one of Slovenia’s foreign policy priorities.

Foreign policy orientation was initial y mostly a bottom-up, spontaneous activ-

ity without any strategic documents in support of it. It was only in 1999 that the

Slovenian Parliament adopted the first strategic document Declaration on foreign

policy of Slovenia. Its main emphasis was Europeanisation and strengthening co-

operation with its neighbours. Asia or China were not paid much attention, al-

though the declaration did state that:

»The Republic of Slovenia will continue to strengthen all round cooperation

with non-European states. As an active member of the international community,

Slovenia will continue the conduct dialogue with the most important countries and

regional initiatives and organisations in this part of the world. Slovenia will further

build its presence in careful y selected locations, in which there are ample needs

and possibilities for economic cooperation. Considering the strategic opening of

the European Union to non-European countries and within the framework of glo-

balization of the world economy, the Republic of Slovenia will pay special atten-

tion to its presence in individual regions of the world and in non-European states.

Particular emphasis will be devoted to cooperation with the People’s Republic of

China as a permanent member of the UN Security Council and to those coun-

tries in which live large groups of Slovenian emigrants« (Declaration … 1999, 8).

92 This was such a high priority that even the Strategy of International Economic Relations of

Slovenia with other integration groupings and selected countries does not select China at all

among countries for developing specific cooperation (see Strategija, 1996).

96

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Obviously, Asia and in this context China were not among the top priorities (re-

ceiving less than half a page out of nine). This Declaration was followed in 2015

by a more comprehensive foreign policy of the Republic of Slovenia adopted in 2015

(see Slovenija, 2015). It follows previous priorities, where strengthening relations

with China was again not very high on the agenda (less than 1 page for the entire

Asia among a total of 25 pages). The strategy stipulates that:

»Slovenia’s leading Asian partners include India, Japan, and China as the world’s

economic superpower. Slovenia’s economic interests in Asian countries are closely

associated with the port of Koper, Slovenian railways, the Slovenian automotive

industry, and Hi-Tech cooperation. The highly important segments of Slovenia’s

cooperation with Asia concern the fields of science, development and innovation«

(Slovenija, 2015, 21).

Although a relatively low priority, political relations with China were raised to a

very high level quite early on.

Table 3: Major bilateral meetings before 1996

1992

Visits by a delegation of the Chinese Foreign Ministry to Slovenia

February 1993

Slovenia Embassy opens in Beijing

August 1993

Chinese Embassy opens in Ljubljana

September 1993

Protocol on consultations between Foreign Ministries signed in Ljubljana

during visit by China’s Deputy Prime Minister and Foreign Minister

June 1994

Foreign Minister Peterle visits China

February 1995

Prime Minister Drnovšek visits China

Source: Cencen 2011, 279–281.

After 1992 came 24 visits by high-level Slovenian politicians, including 4 visits

by Slovenian prime ministers to China (1995, 2003, 2007, 2015) and one by its

deputy prime minister in 2016. The President of the Republic of Slovenia (RS)

visited China three times (1996, 2008, 2009), followed by visits by the President of

the Slovenian National Assembly (2011 and 2015).

Chinese officials also visited Slovenia at a high political level quite frequently

(13 times after 1992), including visits by prime and deputy prime ministers, the

minister of foreign affairs and senior officials of the Chinese People’s Political

Consultative Conference (CPPCC) and other high-level party officials from cen-

tral and regional levels (details are found in Appendix 1).

The relatively intensive initial cooperation was due to shared economic and po-

litical interests. The reason for such intensive bilateral relations was initial y in



Slovenia-China bilateral relations

97

Slovenia’s interest as it sought to obtain international recognition and getting

China’s, as a permanent member of the UN Security council, to support this, was

thus very important. Another driver on the Chinese side was to establish relations

with the new state as part of its global open door policy while deterring Slovenia

from becoming too cosy with Taiwan.93 This proved to be successful since the

Slovenian authorities often reiterated that they supported One-China policy.94 In

the economic field, China saw Slovenia as a springboard to the EU (the Port of

Koper is important here and regarded by the Chinese as a hub) and final y more

intensive economic and technological cooperation benefited the competitiveness

of their firms.

Table 4: Interests in bilateral cooperation

Chinese

Slovenian

Establishing relations with new states as

Recognition of the new state

part of its global strategy

Deterring Slovenia from Taiwan

China as a member of the UN Security

Council

Economic and technological cooperation

The large Chinese market

Slovenia as a springboard to the EU

Strengthening its position in Europe

Source: Cencen, 2011, 280–281.

China was also interested in observing how the region had developed after the

dissolution of Yugoslavia and, as the latest 16+1 initiative demonstrates, in the

development of the whole region of Central and Eastern Europe (CEE). Not

least since China has been in transition, its interest has also included studying

the experiences of countries like Slovenia on their path through transition. Since

China, like Yugoslavia, was a multi-ethnic/multinational state, such experiences

were also of interest to China. However, China was somehow reluctant to support

the position that all successor states of former Yugoslavia were equal successors

to former Yugoslavia. China also did not support the position that Milošević’s

93 In March 2018, the Slovenian Police detained six criminals (4 of Taiwanese nationality)

for being involved in human trafficking associated with illegal call centres (the action was

coordinated by the Taiwanese). The victims of such telephone fraud were Chinese citizens.

The Slovenian Police’s cooperation with Taiwan’s respective institution was seen by China

as a violation of one China policy and could »harm bilateral relations between China and Slovenia«, wrote the Chinese Embassy in Ljubljana. For the Slovenian authorities, it was

»merely following the operational requirements of the international investigation, which the

Chinese authorities were also aware of«

94 China has also frequently stated that the Tibet question is equal y important to China.





98

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Federal Republic of Yugoslavia had to apply for membership in the UN as a new

state. It was only after 1996 that China (President Jiang Zemin) clearly stated that

China had no special interests in South-east Europe and was seeking to establish

good relations with all states (see Cencen 2011, 281). Stil , even today it does not

recognise Kosovo as an independent state.

Final y, a culture also plays a role. The Chinese have certain sympathies for for-

mer Yugoslavia and thus also due to Yugoslav partisan movies being often shown

on Chinese national TV channels (for instance, Valter Defends Sarajevo, which

remains very popular), the first foreign movie to be played in China after the

Cultural Revolution. Slovene music group Laibach has also become quite popular.

3.4. INSTITUTIONAL BASIS FOR MUTUAL COOPERATION

Such intensive bilateral relations led to several agreements to be signed quite early

on. These aimed at building the institutional framework to facilitate bilateral po-

litical and economic cooperation (see Appendix 2).

Table 5: Major economic agreements between Slovenia and China

Interstate

• Agreement on trade and economic cooperation

• Agreement on scientific and technological cooperation

• Agreement on the promotion and mutual protection of

investments

• Agreement on the avoidance of double taxation and

prevention of tax evasion

Public Agency of the

• CIPA (China Investment Promotion Agency) – agreement on

Republic of Slovenia for

mutual cooperation

Entrepreneurship and

Foreign Investment (JAPTI)

Chamber of Commerce

• China Council for the Promotion of International Trade

and Industry (GZS)

(CCPIT) – agreement on mutual cooperation

• Council for the Promotion of International Trade (CCPIT –

agreement on establishment of the China–Slovenia Business

Council)

• Trade Development Board at the Ministry of Trade

(MOFCOM)

EU

• Agreement on trade and economic cooperation

• ADS (Authorised Destination Status), which also obliges

Slovenia as of 1.5.2004. Chinese tourists must enter and

leave the EU as a group with at least five people. They must

travel within the EU area as part of a tourist programme.

• Bilateral EU–China agreement on the WTO

Source: compiled by the author.



Slovenia-China bilateral relations

99

The first official visit after Slovenia’s independence came in February 1992 when

Foreign Minister Rupel visited China. Soon after, in May 1992, the two countries

established diplomatic relations and Slovenia established an embassy in Beijing that

started working in February 1993. In order to boost economic cooperation, a co-

operation agreement was signed in 2000 by the Slovenian Chamber of Commerce

and CCPIT (with quite a delay), according to which a Joint Commission for Trade

and Economic Cooperation was set up.

Despite such intensive political relations, the first economic strategy on China

was only developed in 1999 by the Ministry for Economic Cooperation and

Development (MEOR) and the Slovenian Chamber of Commerce. Major priori-

ties were to exchange technologies, promote joint production for third markets,

stimulate a joint technology development in the framework of science-technol-

ogy cooperation, and support Slovenian representative offices in China. Its basic

orientation was to expand exports in four priority areas: automotive, pharma-

ceuticals, industry of electrical machines, and the wood industry. Later, a special

programme for enhancing the internationalisation of Slovenian firms was also

prepared for the period 2010–2014, which indicated certain priority markets. The

EU was, together with the Balkans, still given the most emphasis in Slovenia’s re-

gional orientation of its economic world ties. Nevertheless, the Programme gave

special attention to new emerging markets like BRICS. Specific operational pro-

grammes by countries were planned to be developed on a yearly basis later.

Such programmes were later upgraded by the 2015–2020 Programme for

Internationalisation (Programme for Internationalisation, 2015). This Programme

took account of compliance with the existing strategic documents such as the

Slovenian Industrial Policy, the Smart Specialisation Strategy 2014–2020, the

Partnership Agreement and the Operational Programme as well as the guidelines the EU provided in the Europe 2020 Strategy, including the Trade Strategy for EU 2020.

Strategic objectives of the above-mentioned Internationalisation Programme are to:

• increase exports by 5% annual y;

• raise GDP per capita by 2%–3% annual y, and the share of exports in GDP per

capita by 2% annual y;

• increase exports to non-EU markets by 5% annual y; and

• at least maintain the share of inward FDI in GDP.

Special attention is paid to the diversification of economic ties from the too high

dependence on the EU only to increasing exports to non-EU members like China.

China is specifical y mentioned in context of promoting the international opera-

tion of companies, especial y SMEs, including the Intellectual Property Rights

(IPR) Helpdesk China (Programme for Internationalisation, 2015, 7).

100

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The last strategic document adopted by the Slovenian government was the Strategy

for the Economic Development of Slovenia 2030 (Strategija razvoja Slovenije,

2030) adopted in 2017 more a list of development objectives, and almost ignores

the international setting. It does not set out any regional or foreign trade priori-

ties. China is not mentioned at al , only implicitly (in the global context chapter)

where it is claimed that »economic power is moving towards Asia, which influ-

ences the global changing power relations« (see Strategija, 2017, 10). In the lat-

est International Challenges 2019–2020, China has also assumed only 8th place

among the priority markets (after Germany, Austria and Switzerland, Italy, France

Visegrad group and former Yugoslav republics (Ministrstvo za gospodarski razvoj

in tehnologijo, 2019, 13).

Cooperation in the area of science and technology is governed by the bilateral

governmental agreement on scientific and technological cooperation. In addition,

an agreement on scientific cooperation was signed by the Slovenian Academy of

Sciences and Arts and the Chinese Academy of Social Sciences (to facilitate the

cooperation of all interested scientists). Activity in the field of karstology and the

recultivation of karst areas was paid special attention.

In the field of health and medicine, cooperation is regulated by the bilateral gov-

ernmental agreement on working together in the area of health and medicine.

In the framework of the cooperation thus far, most activities have concerned

the fields of blood supply, traditional Chinese medicine, education of Slovenian

doctors in the field of acupuncture and mucous in China, pol ution studies of

heavy metals etc. The two governments also signed the Protocol on the Health

Condition of Slovenia Exporting Dairy Products to China«, which opened the

gate for Slovenian agriculture and food product exports in the Chinese market.

Two memoranda on cooperation in infrastructure and sports were signed in

2018. The latter forms the framework for cooperation in education between the

two countries, mobility, openness, exchanges of teachers and students, as well as

the col aboration of schools in Slovenia and China. China has shown an interest in

boosting cooperation with Slovenia in sports and sports infrastructure, particu-

larly in the context of preparations for the 2022 Beijing Winter Olympics. Minister

of Education, Science and Sport Maja Makovec Brenčič presented what Slovenia

can offer in the area of sports infrastructure, such as the Planica Nordic Centre,

and staff training, especial y in winter sports95 like ski jumping. The problem is

with the following activities: Competitors like the Austrians, Swiss and Canadians

95 Slovenian cooperation in this field should be a good starting point in terms of Elan skis

holding the biggest market share of China’s market. ELAN skies are quite well-known in the



Slovenia-China bilateral relations

101

started to offer their cooperation in this regard immediately after the announce-

ment that China had won the games by opening their own representative offices

there in order to facilitate such cooperation.

The memorandum on countries’ participation in transport and infrastructure was

only signed in 2018 in Beijing, despite China’s often expressed interest to invest

in this area. This memorandum stressed the importance of maritime transport

and infrastructure development in the areas of railways, motorways and logistics.

Slovenia would like the transport routes along the Silk Road to be connected up

with transport corridors that cross Slovenia.

Slovenia and China also signed agreements on boosting cooperation in aviation

to allow Slovenia’s maker of ultralight aircraft, Pipistrel, to sell its planes in this

Asian country. Chinese aviation is growing fast and holds great market potential96

and this agreement will boost sales of ultra-light aircraft and equipment in the

Chinese market. The project is worth over EUR 350 million.

Apart from the mentioned institutional basis, many other activities stimulate co-

operation with China. For instance, several seminars or conferences have been

organised. A seminar entitled »Opportunities for doing business on the Asian

market – with an emphasis on India and China« (2015), was organised by the

Public Agency SPIRIT Slovenia. It was attended by 40 representatives from 35

Slovenian companies interested in doing business in the Asian market. In particu-

lar, opportunities in the fields of clean technologies in India and the food industry

in China were presented.

Great efforts to boost cooperation have also been made by SPIRIT Slovenia that

organised 10 companies to join the CEEC Trade and Investment Expo in Ningbo,

China. More than 30 companies visited China along with Minister Židan and

participated in the China International Agriculture Fair in Fuzhou.

Besides that, seminar, many other meetings have been organised in order to pro-

mote cooperation. For instance, the »China and Europe – 21st Century Global

Leadership« Forum organised by IEDC in June 2016 in Bled, was attended by

China Construction, Power China and many other big companies. The First China

Premium Brand Fair was held at the Celje Fair, at which 60 Chinese companies

Chinese market, but so far the ELAN company is lagging well behind its competitors from

Austria.

96 China will overtake America as the world's biggest aviation market by 2022, and will go on to reach a total of 1.5 billion passengers by 2036 (The Economist, 2018, 7 April, 56).

102

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

exhibited their products. The Municipality of Maribor held a Slovenia–China

Economic and Trade Forum in November, with over 60 representatives from

Shanghai, Jiangsu and other parts of China participating. More and more Chinese

companies are willing to cooperate with their Slovenian counterparts. Over 100

hundred companies came to Slovenia in 2016 to seek cooperation opportunities.

Last but not least, culture will also help boost economic cooperation. A perfor-

mance of TURNADOT by the China National Opera as well as orchestras con-

ducted by Chinese musicians were warmly welcomed by Slovenian audiences in

2018. Slovenia learns about Chinese culture through the Chinese Language Day

and other events conducted by the Confucius Institute (see the interview with

H.E. YE Hao, Ambassador of the People’s Republic of China in Slovenia (Fister,

2016)).

SPIRIT Slovenia knows that the start of business in China is organisational y and

financial y a very demanding project for most Slovenian SMEs and thus offers

support to firms with a range of free services like education, consulting, imple-

mentation of economic delegations, organisation and co-financing of group and

individual trade shows, co-financing the production of market research, and as-

sistance from other organisations.





Economic cooperation between Slovenia and China

103

4. ECONOMIC COOPERATION BETWEEN SLOVENIA AND

CHINA

4.1. THE ROLE OF PORT KOPER

The crucial starting points serving as the framework for bilateral cooperation is

the geostrategic position of Slovenia represented by the Port of Koper, the larg-

est container terminal in the Adriatic, and the second-biggest car terminal in

the Mediterranean (Vrabec, 2016). Logistical y speaking, it offers some of the

best access to European markets, particularly Central Europe97. Its importance

has grown substantial y since China launched the OBOR project because the

Northern Adriatic is an end point of the Maritime Silk Road along with some

other ports within the North Adriatic Ports Association (NAPA). They are recog-

nised by the European Commission as »European core ports«, while the Northern

Adriatic was recognised as »the key EU entrance«, taking fourth place among

ports in Europe. A study by Motoh et al. (2019, 1) estimates that around 6 mil-

lion TEUs could be reached by 2030, compared to 124 million tonnes of cargo

throughput in 2018. According to the same study, the Port of Koper is vital for

the Austrian, Slovak and Hungarian markets. It positions itself as a leading cargo

freight port in the Northern Adriatic, especial y for vehicle throughput and other

cargo types on the southern route to/from Europe (timber, livestock, soy, alu-

mina, iron products)98. It operates 12 terminals. The container terminal has regu-

lar weekly lines to the Middle East, East Asia, and the Red Sea, while also being

connected via feeder services with important Mediterranean99 ports. The Car and

Ro-Ro terminal is one of the largest car terminals in the Mediterranean, operating

European exports and imports which mostly come from Japan, South Korea and

Turkey. Other terminals include: the General Cargo Terminal, Reefer Terminal

for perishable goods, Timber Terminal, Dry Bulk Terminal (for minerals, indus-

97 For more, see Mirošič, 2016.

98 »Summary of Luka Koper d.d. and the Luka Koper Group Business Strategy until 2030 and

the Company's and Group's Strategic Business Plan 2016 – 2020«, Luka Koper (https://www.

luka-kp.si/eng/mission-vision-strategy)

99 »Container Terminal«, Luka Koper, https://www.luka-kp.si/eng/terminals/single/container-terminal-244 (15 May 2019)



104

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

trial minerals and other bulk cargo), Silo Terminal (for cereals and fodder, with a

divided system for storing non-GMO), Alumina terminal (for the sandy type of

alumina), Iron Ore and Coal Terminal, Liquid Cargos Terminal (chemicals, min-

erals and vegetable oils) and Livestock Terminal. The Port of Koper also operates

a cruise terminal, with an increasing number of incoming cruise ships what Covid

19 of course interrupted.

The Port of Koper remains the first port of call in the Adriatic with the most

favourable transit time in the westbound import direction. Not surprisingly, the

Chinese market is an important market for the Port of Koper in view of China

enhancing its cooperation with Central and Eastern Europe through the 17+1

initiative. The cooperation of the Port of Koper with the Chinese market in the

container segment has already been very important and promises even greater

opportunities in the future.

Figure 30: Chinese overseas traffic through Koper in tonnes

Source: Vrabec, 2016.

The Port of Koper has direct, weekly connections with China through two alli-

ances. The second one, The Ocean Alliance, includes China’s Cosco. The latter

is coming to Koper with two more feeder services, i.e. connections within the

Mediterranean. Koper is the biggest destination for exports to southern and cen-

tral Europe. It is therefore no surprise that, as China’s Ambassador to the Republic

of Slovenia emphasised, »China is willing to actively participate in Slovenia’s pro-

jects at the Port of Koper and railway reconstruction, and carry out cooperation

with Slovenia in fields such as trade parks, logistics, equipment manufacturing

and transportation infrastructure based on China’s initiative of cooperation in

three port areas of the Adriatic Sea, Baltic Sea and Black Sea. China supports

its enterprises to participate in the privatisation of some state-owned enterprises

Economic cooperation between Slovenia and China

105

in Slovenia and launch cooperation with Slovenia in fields such as new energy,

high and new technology, biological pharmacy and environmental protection.

China is willing to expand its cooperation in agriculture, forestry and tourism«

(see interview with H.E. YE Hao, Ambassador of the People’s Republic of China

in Slovenia; in Fister, 2016).

Except for 2019, the total volume of cargo transhipped via the Port of Koper has

constantly been increasing, particularly the containers cargo. Total transhipment

in the Port of Koper grew from 20.7 million tonnes in 2015 to 24.1 million tonnes

in 2018 but dropped in 2019 to 22.8 tonnes. The importance of transactions with

China is ever growing. In 2018, more than 2 million tonnes of goods were tran-

shipped to and from China, of which over 190,000 twenty-foot equivalent (TEU)

unit and approximately 92,000 vehicles. In 2019, the total transhipment volume

rose to 2,140,000 tonnes. In the summer of 2020, Luka Koper recorded 1,040,000

tonnes of transhipped goods to/from China. In recent years, the transhipment of

prestigious car brands exported from the EU to China via the Port of Koper has

also been a recognised phenomenon.

In 2018, the Port of Koper also formal joined the OBOR initiative after signing

the Memorandum on understanding in the framework of the international con-

ference »Maritime Silk Road Port International Cooperation Forum«, in June

2018 in the Chinese city of Ningbo. This Memorandum aims to strength the trade

between China and the Central and Eastern Europe countries100, which conduct

most of their overseas trade through the Port of Koper. It is offering new opportu-

nities to the Port in the future, especial y by shortening the transit time by estab-

lishing direct links, which is becoming so critical for al , including Chinese freight

forwarders and exporters. However, to ful y realise such plans a precondition is to

build a second railway track between Divača and Koper so as to greatly enhance

inter-modal transport’s capacity from the Port of Koper.

Container connections are currently established between the Far East and the

Port of Koper, with two direct container services provided by the shipping as-

sociations: 2M (Maersk Line and MSC – Mediterranean Shipping Company) and

Ocean Alliance (CMA CGM, COSCO, Evergreen, OOCL). As well as these direct

services, the Port of Koper is also connected to Chinese ports by other ship-own-

ers via ‘transhipment arcs’.

100 Two-thirds of the goods in Koper are handled for hinterland markets’ needs and the Port

of Koper has a dominant market share for some destinations. On average, as many as 70

freight trains per day connect Koper with the largest economic centres in Central and Eastern

Europe.





106

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The Port of Trieste is another competitor of the Port Koper. Despite seeing in-

creasing investment (it has also doubled its container traffic since 2016), it still

lags behind the Port of Koper in container traffic and capacities, surpassing the 24

million-tonne cargo milestone in 2018. This makes it particularly important that

the Port of Koper keep pace and, by developing its hinterland links, strengthen its

competitiveness.

4.2. OTHER SLOVENIA’S COMPARATIVE ADVANTAGES AND

FEARS

Slovenia’s second comparative advantage is its membership in the EU that offers

China a chance to indirectly penetrate this large market. In addition, Slovenia is

a member of 17+1 initiative which, when combined with OBOR and the Port of

Koper, provide the shortest gateway to parts of EU member’s markets. The strate-

gic position enjoyed by the country offers China a way of materialising one of its

major strategic objectives for the next decade: the penetration of global markets

not any more by traditional export products but by higher value-added manufac-

turing, even Hi-Tech products. The Chinese may regard the 17+1 scheme as a ‘soft

bel y’ entrance to the EU, a way of enhancing its political clout in the EU.

A third opportunity is the spectacular rise of China, which offers vast potential for

economic and other forms of political, cultural and scientific cooperation. Yet this

potential might also be a threat, as demonstrated by recent developments such as

the huge rise in Chinese FDI in the EU, particularly taking over some European

technological champions, and the increasing sense that there is an excessive de-

pendence on Chinese imports (especial y in the health sector during the Covid-19

pandemic). As a result, the EU has started to change its strategy on China towards

being more assertive (see Ch. 2.7.1.). The issue is thus how to strike a balance be-

tween opportunity and threat, namely, not such a new dilemma in a historical per-

spective. These are Slovenian’s biggest macro-economic and political comparative

advantages in its relations with China. The strategic position it holds allows China

a way of accomplishing one of its major strategic objectives for the next decade.

In their article the »Chinese are coming«101 (Svetličič and Sicherl, 2006), the specta-

cular growth of China was mainly evaluated as both an opportunity and a challenge.

It even estimated that China could catch Slovenia up in PPP terms, provided that

101 The title was an al usion to the popular movie comedy in the USA in the mid-1960s; »The

Russians are Coming, the Russians are Coming! «, about how a submarine landed in the USA

and how Americans were afraid of such an invasion.





Economic cooperation between Slovenia and China

107

difference in growth rate would be 4% already in 2034. Twelve years later, the same

title was used by Slovenian Newspaper Finance’s the special dossier, China (Finance,

2018), largely based on Godement et al., 2017 with almost the same title. Stil , the

main message this time was quite different, warning about the challenges and threats

of China’s growing role in the global economy, Chinese sharp power, about impos-

ing its standards etc. It emphasised the threat brought by China’s greater FDI around

the world, in Europe and Slovenia, claiming that such ownership could threaten

both the sovereignty of host countries and lifestyles by transferring Chinese ways of

doing things and the country’s undemocratic system.

Such threats are not total y new. They were already seen in the past as yellow

peril, which has begun in at the end of the 19th century as a fear of Chinese im-

migrants. The second yellow peril was the fear of Japan’s expansion and techno-

logical threats in the mid-1960s through the mid-1980s. After WW2, Europeans

started to be afraid of America’s domination, as well described in Schreiber’s

American Challenge (1967). Later, Soviet communism ( the red scare) began to worry the Americans and now, in more recent times, the Trump Administration

started a trade war with China since the American president believed China had

been exploiting the USA (perhaps the third yellow peril102). Today, we may observe similar reactions, fears of the rising global competitiveness of newly emerging

economies, China in particular, leading to them becoming important players in

the global economy.

In the past, all of such fears have shown to be overblown, notwithstanding the

substantial differences exist among them, due to the size, political system and ide-

ological basis along with military strength and geopolitical ambitions and, final y,

civilisation/cultural characteristics of the challengers. If history is a good teacher,

it may also now seem as if the threats of China are overblown, even though China

is now much stronger in all its characteristics, representing a qualitative differ-

ence. »The greatest threat is not China’s ambitions, but its selfishness, and this will

define the coming decades« (Brown, 2020, 23).

4.3. FOREIGN TRADE

Europe’s strong path dependency based on the traditional European orientation

of Slovenia’s international economic relations, which is also a political priority,

necessarily imply that lower priority is being given to cooperation with Asia,

102 Read more about these fears in Svetličič, 2020a.

108

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

including China. This did not facilitate a framework for boosting economic coop-

eration with China, as did the lack of interest and knowledge about trends in the

global economy. The tectonic changes underway were underestimated, particu-

larly China’s spectacular growth rates. China namely almost quadrupled its GDP

between 1989 and –2018, while advanced economies only saw a rise of some 50%

(see The Economist, 2018, March 31, 74).

China, as part of BRICs, started to attract more attention only after a Goldman

Sachs study in 2003 (Wilson et.al.) and later during the consultations that

President Drnovšek organised as part of strategic debates on Slovenia’s future

foreign policy (Svetličič, 2004) and conferences at the Chamber of Commerce

and Industry (GZS) in 2005. Slovenian authorities and firms had overlooked the

dynamic development of China and opportunities in that market in view of high

growth rates and its general opening up strategy.

Bilateral trade has been quite unbalanced. Imports into Slovenia from China are

much more important than Slovenian exports to China (not among the major

partners at all). One reason is lack of knowledge about the Chinese market, in-

cluding cross-cultural differences about how to do business there. Chinese firms

started to be interested in investing in Slovenia already in 1996 while Slovenian

firms mostly only after 2000, and even then relatively modestly. An important step

in stimulating economic cooperation was establishment of a Slovenian represent-

ative office in Shanghai by JAPTI in February 2008. In addition, there is the Club

of Slovenians in Shanghai, which brings 40 entrepreneurs together who mostly

work in the eastern part of China and share their experiences and contacts. Most

Slovenian companies namely operate on the eastern side of the Yangtze River, in

the metropolitan cities of Shanghai and Suzhou.

As late as in 2014, while meeting Chinese Minister of Commerce Gao Hucheng

at a conference of trade and economy ministers from China and 16 Central and

Eastern European countries in Ningbo Minister of the Economy Dragonja stated

that Slovenia planned to double its exports to China over the next 5 years. The

Chinese side expressed its interest in investing in the infrastructure103, energy,

103 Chinese investors have often been interested in buying or investing in the Port of Koper. In 2011, then Slovenian Prime Minister Pahor revealed the Chinese government had offered up

to EUR 10 billion to purchase Slovenian Railways and that the construction of high-speed

lines would be carried out by Chinese companies with Chinese workers. He had rejected the

offer as the arrival of thousands of Chinese workers in Slovenia might have caused a social

bomb that the country would not tolerate. Chinese Southern Airlines (the largest airline in

Asia and second biggest in the world) was ready to buy Adria Airways, a freight airport, and

an aviation school. Their plan was to convert Brnik Airport into a hub for Western Europe.

Economic cooperation between Slovenia and China

109

biomedicine and automotive sectors. Gao Hucheng expressed his support for

Slovenia’s plans and said that Slovenia should boost food exports and expressed

his wish that the issue of visas and work permits at Slovenia’s embassy in Beijing

and at the Shanghai consulate would be simplified.

In spite of constant growing trade with China, its share in total Slovenia foreign

trade has remained very limited, albeit it is increasing gradual y (see Table 6). It

has become much higher in terms of imports which have risen substantial y while

the share of exports to China in total Slovenian exports continues to be modest.

Table 6: Foreign trade of Slovenia with China, 1994–2019; shares in total exports and

imports of Slovenia (in %)

1994

2000

2008

2012

2017

2018

2019

Exports

0.6

0.16

0.39

0.65

1.12

0.99

0.83

Imports

0.5

0.39

1.91

2.79

3.14

3.34

3.70

Source: Bank of Slovenia, 2017 and 2020.

The lion’s share of Slovenia’s foreign trade of during the whole period was held

by the EU, accounting for almost 77% of Slovenian exports and 80% of imports,

followed by countries of former Yugoslavia. This orientation of Slovenian foreign

trade towards Europe has even grown since in 1997 when the EU absorbed 63%

of exports and was the source of 67% of the country’s imports. But taking into ac-

count that the number of EU members has increased, one may conclude the share

has remained almost the same. Slovenian exports to Serbia alone used to be more

than four times greater than those to China (2015), but in 2018 they were only

around three times. The situation is total y different with imports into Slovenia,

where China’s share is almost twice as big as that from Serbia alone.

The project col apsed as no Slovenian state representative found time to accept the Chinese

delegation (Jenko 2016). In view of the fact that China’s airlines are adding passengers at a

rate not seen since Emirates, Etihad and Qatar Airways started to attract customers to their

Gulf hubs, this may be seen as quite a strategic opportunity. The airport was instead sold to

the German Fraport AG in 2015, reflecting at least in part the traditional Slovenian mental-

ity; »Made in Germany means quality« while the Chinese are not well-known enough, not

considered to be on the technology top level, are different, unknown and unpredictable, as the

stereotypes go.





110

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Foreign trade with China, without Hong Kong104, has been gradual y increas-

ing since 2000. The value of imports from China until the end of 2019, when

it accounted for 12.6% of Slovenian goods imports from non-EU countries but

only 3.4% of total Slovenian imports. This increase in 2019 was mostly the result

of greater imports of medical equipment and related textile products. In 2019,

China was the eighth-most important country from which Slovenia imported,

and its second-most important trading partner (after Switzerland) among non-

EU countries.

Figure 31: Trade in goods between Slovenia and China 2014–2020105 (EUR million)

ex

p

o

rt

s

imports

Source: Statistical Office of Slovenia.

Figure 32: Imports of Slovenia from China 2000–2019 (in EUR million)

Source: Statistical Office of Slovenia.

104 Hong Kong is given separately.

105 For 2020 only until the end of August.



Economic cooperation between Slovenia and China

111

In export terms, the situation is quite different, although exports to China have

also been on the rise, particularly after 2015. Stil , China is not such an impor-

tant export destination for Slovenian firms as it is with imports. In 2019, Slovenia

exported to China EUR 265.3 million or 3.0% of the country’s total exports to

non-EU countries and imported EUR 1,159 million (a 26-fold increase over

2000). China thereby became Slovenia’s seventh-most important export destina-

tion among non-EU countries in 2019, and the eighth-most important country

general y from which Slovenia imported. The value of Slovenian exports to China

largely grew until 2017, but then it started to fall (Statistical Office of Slovenia).

Figure 33: Exports of Slovenia to China 2000–2019 (EUR million)

Source: Statistical Office of Slovenia, https://www.stat.si/StatWeb/News/Index/9202).

This unbalanced trade has produced a substantial and ever-growing trade deficit,

and continues to be the second biggest feature of foreign trade with China (the

first being the modest shares involved). The trade deficit increased from the quite

modest EUR 27 million in 1994 to EUR 894 million in 2019. Since exports to

Hong Kong have grown much more than imports, trade with Hong Kong has in

fact slightly improved the trade balance with China, although the importance of

the trade with Hong Kong has decreased, as seen in its considerably smaller share

compared to China (see Table 7).

China’s increasing role is the result of its growth rates exceeding those of other

countries. Although Slovenia is a small open economy, in 2018 one could find

12,581 companies importing from China and 475 exporting there (see https://

www.gov.si/novice/2019-12-24-slovenska-gospodarska-diplomacija-po-sve-

tu-pismo-s-kitajske/). On one side, these figures seem like good news, yet they increase the costs and risks of transactions. Not all firms, particularly small ones,

have the knowledge and skil s to successful y overcome all of the risks and fixed

or entry costs entailed in international operations.

112

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Trade with China clearly started to rise after it joined the WTO in 2002, thus

simplifying trade relations and attracting more Slovenian firms to start cooperat-

ing with China. Prior to 2002, only firms that with already established contacts

in China from Yugoslav times were active there, or those whose managers had

transferred their knowledge of doing business with China from other companies

they worked at the end of the 1980s/early 1990s and then opened up their own

businesses (Ivančič, 2016, 36–37).

The shifting trajectory of exports can be explained by huge deals made by some

firms in particular years106 while the drop in imports in 2009 can be by the crisis

of the Slovenian economy. Regrettably, Slovenia missed the opportunity to help

it exit from the GR in 2008 by expanding its exports to China which, due to its

clever pre-crisis policies of adjustment and swift reactions to the crisis, had al-

most bypassed the Chinese economy without any serious bruises. On the con-

trary, imports from China during the crisis increased more than exports. Stil , in

the period before the crisis, Slovenian trade with China was growing much faster

than to any other big countries or groupings. Slovenia was not very specific in this

regard as most EU member states, including new members, had not grasped the

chance to develop cooperation with China as a way out of the crisis (see Tkalec

and Svetličič (2014; 176). The cited authors claim that new EU member states

(NMS), have been more successful in adjusting to the new centres of economic

growth (more by way of exports than inward FDI), but not if Russia, the biggest

partner of the NMSs, is excluded from the analysis. It therefore cannot be claimed

that this success was the result of far-sighted strategies. The NMS have in fact been

faster than the EU-15 in increasing the share of their exports and inward FDI in

relation with Growth market countries (GMs)107. Part of the explanation may be

path dependence since the GMs include former socialist and non-aligned coun-

tries that are historical partners of many NMSs. Some cultural factors, smaller

cultural/institutional distance and less risk aversion may explain this result and

help in understanding why countries might not have seen such cooperation as

an exit strategy during the crisis. Even some specific policy initiatives on the EU

and bilateral levels aimed at strengthening cooperation with China and India, for

instance, have been unable to prevent the continuing of such historical y, deeply-

rooted path dependence factors to enhance the strong links with Russia on top

106 Once for instance Gorenje was equipping whole new residential areas with household

appliances, implying huge exports of such equipment from Slovenia. With the help of the

local partner GIIC CO, Gorenje is basical y selling on the local market only designer products

(Pininfarina) made with Swarovski crystal elements. The local partner was needed because

the Gorenje trademark was not known enough.

107 BRIC countries plus Mexico, Korea, Turkey and Indonesia.





Economic cooperation between Slovenia and China

113

of the economic complementarities (oil and gas for consumer goods). Regional

policy initiatives have not moved very far forward from declaring the BRICs as

strategic partners. One explanation for this may be differences among EU mem-

bers, particularly with regard to China. There were more bilateral arrangements,

whereas multilateral ones prevailed before the crisis as a strategy (ibid. 2014, 194).

The dynamics of Slovenia’s trade with China are similar as for the whole of EU

trade relations with China. In all cases, there is a substantial trade deficit (yet

much smaller in the case of the EU) and the growth has seen similar dynamics.

Imports almost twice exceeded exports in 2019 (being a 2.3-fold decrease since

2009), while in the case of Slovenia they outpaced exports by four times in 2019.

Figure 34: EU trade flows and balance with China, 2009–2019 (EUR million)

Source: European Commission, 2020h.

4.4. TRADE WITH HONG KONG

Slovenia’s trade with Hong Kong (HK) was initial y quite important since it ac-

counted for up to 40% of exports to China in 2000 (but imports much less at 21%).

Parallel to the strengthening of cooperation with China, the share of imports and

exports to HK has been falling and with substantial oscil ations (see Table 7), al-

though in exports it remains an important destination. In 2019, EUR 103 million

worth of goods, or 4% of the total trade between Slovenia and mainland China,

was routed through Hong Kong (Honorary Consulate General of Slovenia in

Hong Kong) https://www.hketoberlin.gov.hk/en/re_slovenia.htm).

114

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Table 7: Share of foreign trade with Hong Kong in total trade with China (in %)

2000

2008

2012

2017

2018

2019

Exports

40

16

28

12

17

20

Imports

21

10

0.7

0.7

0.8

0.7

Source: Statistical Office of the Republic of Slovenia; SURS https://pxweb.stat.si/SiStatData/pxweb/

sl/Data/-/2490004S.px/table/tableViewLayout2/.

The huge oscil ations seen in trade flows have run parallel to the substantial varia-

tions in the trade structure. The import structure was similar to imports from China,

with manufacturing products dominating and decreasing the share held by textiles.

In 2019, Slovenia’s main imports from Hong Kong were manufactured tobacco

(99.3%). Exports have also seen huge fluctuations in terms of trend and struc-

ture. Machinery and equipment dominated in the country’s exports to HK, with

a decreasing trend. On the other hand, chemicals have gradual y increased their

share. The most substantial was the rise observed in miscel aneous products. In

2019, Slovenian firms mostly exported passenger motor cars (61.8%), watches

and clocks (5.3%) as well as measuring, analysing and controlling instruments

(5.1%) (see https://www.hketoberlin.gov.hk/en/re_slovenia.htm). To conclude,

Slovenian firms have not been sufficiently using the ‘smal ’ Hong Kong as a good

starting platform for the large Chinese market. This cooperation might be par-

ticularly suitable for new entrants and SMEs.

Slovenia’s trade with Hong Kong is general y similar to the EU’s trade with Hong

Kong, yet there is greater stability with the EU’s trade with Hong Kong. Hong

Kong is also not one of the EU’s top trading partners. In 2018, it was its 20th larg-

est trading partner in goods while it ranked as the EU’s 8th trading partner in

Asia. On the other hand, the EU is Hong Kong’s second biggest trading part-

ner after China. The trade structure is also similar. EU imports from Hong Kong

are dominated by machinery, transport, and telecommunication equipment. The

structure of exports is similar, dominated by machinery and transport equipment,

telecommunication equipment, chemicals and other semi-finished products. In

commercial services, EU–Hong Kong trade has shown stable development over

the past years. FDI data indicate that in past years the EU has been a major source

of foreign direct investment in Hong Kong. In 2017, Hong Kong was the third-

most popular FDI destination for the EU. According to the latest survey carried

out by the Hong Kong SAR government (2018), over 2,200 EU companies have set

up business in Hong Kong and around half are using Hong Kong as their regional

headquarters or regional offices. EU companies are key players in a range of sec-

tors in the Hong Kong economy, including banking, insurance and securities. This

importance may well decrease due to Brexit.





Economic cooperation between Slovenia and China

115

Figure 35: EU–Hong Kong trade in goods (EUR billion)

Source: European Commission, 2020, https://ec.europa.eu/trade/policy/countries-and-regions/

countries/hong-kong-sar/.

Figure 36: EU-(27)–Hong Kong FDI (EUR billion)

Source: European Commission, 2020 https://ec.europa.eu/trade/policy/countries-and-regions/

countries/hong-kong-sar/.

Foreign direct investment data indicate that over the past years the EU has been

a major source of FDI in Hong Kong. In 2017, Hong Kong was the third-most

popular FDI destination for the EU. According to the survey carried out by the

Hong Kong SAR government (2018), over 2 200 EU companies have set up their

businesses in Hong Kong and around half of them are using Hong Kong as their

regional headquarters or regional offices. EU companies are key players in a range

of sectors of the Hong Kong economy, including banking, insurance and securi-

ties. This importance may decrease due to the Brexit.

4.5. THE CHANGING STRUCTURE OF SLOVENIA’S TRADE WITH

CHINA

Along with the transition, restructuring of the Slovenian economy, and spectacular

growth enjoyed by China, the bilateral trade structure has also been changing (more

in terms of imports than exports). It has gradual y become ever more intra industry

trade. Manufactures dominated in the whole period on both sides for exports and

116

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

imports. While initial y textiles, a traditional export item of less developed coun-

tries, represented quite a large share of Slovenian imports from China, in 2000–

2017 its share fell almost 4-fold. Just the opposite trend was seen in exports, where

the share of machinery and equipment (capital goods) grew more than 4-fold in

the same period, reflecting the technological upgrading of the Chinese economy.

Such trends followed the changing structure of China international trade in gen-

eral, where the share of more technology-/knowledge-intensive sectors in China’s

exports was growing quite substantial y. From 2006–2015, the knowledge intensity

of Chinese exports has almost tripled (European Parliament, 2018, 14). The share

of low-technology-intensive goods dropped in the period 2000–2017 from 31.5%

to 21%, while high-technology-intensive goods rose from 26.6% to 37% and me-

dium-technology-intensive exports did similarly (see Bučar & Arbeiter, 2019, 9).

Stil , these structural changes also reflect the altering structure of the Slovenian

economy during the transition, albeit at a much slower pace than in China.

Slovenia’s trade structure with China is quite similar to the general structure of

the country’s exports in which road vehicles, pharmaceutical products and elec-

trical machinery& appliances dominate. It is also a result of the intensification of

imports of technology by Chinese firms, including from Slovenia (the share more

than doubled), with exports of chemicals being similar. Consumer goods initial y

formed a high share of Slovenian imports from China, but have almost halved

in 21 years partly due to the higher standard of living in Slovenia and enhanced

awareness of the importance of health and environmental standards, with respect

to which Chinese firms are still not in compliance with all European standards.

Table 8: Trade structure of exports and imports of Slovenia with China, 1994–2015

(SITC rev.2), in %



E x p o r t s

I m p o r t s

1994

2000

2008

2015

1994

2000

2008

2015

Manufactures

88.85

97.99

94.34

90.95

91.08

93.17

96.83

95.42

Machinery and

30.25

32.45

73.90

49.65

11.26

29.82

43.60

46.73

transport equipment

Chemical

10.26

22.99

6.04

18.12

11.89

7.87

7.14

13.17

Food

4.84

0.01

5.46

4.54

5.19

2.97

0.92

0.67

Agricultural Raw

1.69

1.58

0.16

3.15

2.38

0.40

0.34

0.33

Material

Ores and Metal

3.27

0.41

0.02

1.22

0.62

3.42

1.90

2.80

Textiles

12.99

0.72

1.66

0.78

38.34

16.03

16.10

10.85

Fuel

1.13

..

0.01

0.13

0.74

0.04

0.02

0.77

Sources: SURS, and https://wits.worldbank.org/CountryProfile/en/Country/SVN/Year/2015/Tra-

deFlow/Import/Partner/CHN/Product/All-Groups.

Economic cooperation between Slovenia and China

117

A more detailed structure of exports by product groups for 2019 (see Table 9)

better reveals these structural changes. Now, electrical machinery and equipment

and parts thereof, apparatus for recording or reproducing images or sound, and

parts and accessories of such articles represent as much as 25% of total Slovenian

exports to China.

Table 9: Structure of Slovenia’s exports to China in 2019

Share

EUR

PRODUCT GROUPS

1000

25%

66,477

Electrical machinery and equipment and parts thereof, apparatus for

recording or reproducing images or sound, and parts and accessories of

such articles

17%

46.425

Nuclear reactors, boilers, machinery and mechanical appliances, and

parts thereof

13%

33,501

Vehicles other than railway or tramway rolling-stock, and parts and

accessories thereof

7%

19,631

Wood and wood products, charcoal

6%

17,184

Optical, photographic, cinematographic, measuring, checking,

precision, medical or surgical instruments and apparatus, parts and

accessories thereof

4%

10,969

Iron and steel

Source: Statistical Office of Slovenia, https://www.izvoznookno.si/drzave/kitajska/poslovno-

sodelovanje-s-slovenijo/.

China’s technological upgrading is also visible in its exports to Slovenia, where

technology-intensive products together with some industrial consumer goods

have started to dominate.

China is no longer an exporter of cheap labour-intensive products to Slovenia,

reflecting the general quality upgrading and orientation to higher value-added

products in the last decade as part of China’s strategic long-term vision.

China is in the transition from an investment-led to a productivity-led growth

model. Not surprisingly, some even claim that in certain sectors like automobile

production it has already surpassed the European level of quality108. Details of the

import structure reveal that higher value-added products have recently begun to

play a much more important role.

108 R. Page, one of the leading designers at Volvo claims that Geely's Chinese factories have

achieved better production quality than European ones due to the greater automatisation of

production (see Božin, 2018).

118

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Table 10: Structure of Slovenia’s imports from China in 2019



Share

EUR

PRODUCT GROUPS

1000

27%

314.979

Electrical machinery and equipment and parts thereof, apparatus for

recording or reproducing images or sound, and parts and accessories

of such articles

18

212,433

Organic chemical products

14

162,323

Nuclear reactors, boilers, machinery and mechanical appliances, and

parts thereof

3%

33.465

Furniture, bedding, mattresses, mattress supports, cushions and bases

stuffed, lamps and accessories therefor, not elsewhere specified,

illuminated signs, prefabricated buildings

3

32,555

Plastics and articles thereof, rubber and articles thereof

Source: Statistical office Republic of Slovenia https://www.izvoznookno.si/drzave/kitajska/poslov-

no-sodelovanje-s-slovenijo/.

This is basical y similar to the structure of the EU’s trade with China since in its

imports machinery and appliances also represent even the biggest share. On the

other hand, textiles are the second-most important import product group, yet not

real y that important for Slovenia. Also similar is the situation with exports: ma-

chinery and appliances are leading with a 33% share, followed by transport equip-

ment (21%; see https://webgate.ec.europa.eu/isdb_results/factsheets/country/

details_china_en.pdf).

Greater opportunities are also visible in services, particularly tourism109, since

the Chinese have recently become some of the most desired guests in Europe. In

2016, about 156 million Chinese tourists crossed the border (including business-

men, spending EUR 261 billion (https://metinalista.si/kitajski-turisti-v-sloveniji-

in-crni-gori-kdo-so-in-zakaj-prihajajo/). »The number of Chinese tourists going abroad has rocketed in the past decade, from 41 million a year to over 130 million (The Economist, 2018, April 7, 56). Many more will join the crowd since

»currently less than 10% of Chinese hold passports (The Economist, 2019, Special

Report, May 19, 5). However, the recent Covid-19 pandemic has halted this long-

109 The Shenzhen-to-Seattle flight carries 12,000 outbound tourists a month (2018 data). The new Hong Kong–Zhuhai–Macau bridge attracts up to 100,000 mainland tourists per weekend.

Passports are now held by 120 million mainland Chinese, with as many as 30 million more

being issued in 2019. A major challenge is that underprepared destinations will easily find

themselves being swamped if unprepared for an influx of high-end Chinese travellers (see

Orr, 2018, 10). The pandemic of course stopped such increasing trend but could be returned

to long term trend after the vaccination and immunization of the population.



Economic cooperation between Slovenia and China

119

term trend and one cannot expect tourism to recover any time soon. On the con-

trary, the sector will change by way of greater emphasis on domestic tourism.

Figure 37: China is already the world’s largest source of tourists – most to Greater

China – but increasingly they are visiting other destinations

Source: McKinsey, 2019c, 103.

In 2017, Chinese tourists spent over USD 250 billion, far outstripping the spend-

ing of their American counterparts (see The Economist, 2019, Febr. 23.). In 2018,

around 150 million Chinese tourists made outbound trips, with their number

expected to reach 160 million by 2020. China is the world’s largest source of out-

bound tourists in the world, and their spending in destination economies is very

significant, including in Asia. For instance, spending by Chinese visitors is equiv-

alent to 7% and 9% of private consumption in Singapore and Thailand, 7% in

Singapore, 2% in South Korea, and 1% in Japan. In contrast, spending by Chinese

tourists outside of Asia Pacific remains fairly low, at about 15% of total outbound

spending in 2017 (although that share is higher than the 12% seen in 2012). The

capacity is rising to meet the demand created by Chinese tourism among a wider

range of destinations. For instance, in early 2019, four Chinese airlines applied for

additional routes to Italy which, if approved, would increase the weekly frequency

of Italy-bound flights by 24 trips. Such destinations can expect Chinese tourism

spending to grow (see McKinsey 2019a, 104).

Slovenia is also increasingly attracting Chinese tourists, particularly after 2015.

According to the Slovenian Tourist Organisation, in 2018 they numbered 78,171

(but only 1.97% of all foreign tourists), increasing to 98,958 (2.10% of all foreign

tourists). The Covid-19 pandemic, of course, has put a stop to this trend (only





120

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

323 Chinese tourist arrived in Slovenia in 2020 (January–September; 0.25%).

Although the shares remain low, a clear positive trend is observable, which may

predict an increase in the share of all foreign tourists after the pandemic. The

comparative advantage of Slovenia is that is located close to Venice, Vienna and

Munich, and thereby act as the entry point for Chinese tours of Europe. Everything

European appeals to Chinese tourists. The prime objective of the EU and China

in this context is to promote investment opportunities for European operators in

China and to boost European economic growth and jobs by promoting Chinese

tourism in the EU.

4.6. INVESTMENT COOPERATION

The starting point is that Chinese FDI in Slovenia and Slovenian in China are

well below potential in view of the very intensive FDI made by Chinese firms

global y, particularly in Europe, and the growing FDI in China (see Ch. 2.4.2 for

details). Second, given the very important role FDI plays as the most important

instrument of globalisation, in two respects. First, as cost-reduction-motivated

activities by establishing global value chains in lower cost countries and thus re-

taining and enhancing competitiveness and, second, by mergers and acquisitions

(M&A) aimed at obtaining advantages, gaining access to better technology and

knowledge by acquiring foreign firms. At the same time, M&A offer an oppor-

tunity to consolidate firms’ activities, allowing them to gain control of foreign

productive assets overnight, unlike the case with the greenfield investment type

of FDI. Because in global business size matters more and more, not only due to

the need to acquire economies of scale and scope but to build economic empires,

strong oligopolistic structures feature in the global market structure. Second, FDI

and the building of multinational companies have also become increasingly im-

portant instruments for small countries since only in this way can their firms gain

the economies of scale and scope they need for their competitiveness. At the same

time, by supporting their own multinationals, small countries that wish to prevent

large swathes of their economy coming into foreign hands, can preserve the bal-

anced ownership structure of their economies. For a small country like Slovenia,

the so-called 40/40/20 structure seems optimal. But why? Because on average in

the EU foreign ownership in small countries is around 40%. Assuming that about

20% are economic activities which cannot be or are not globalised, the only way

to keep foreign ownership at 40% or below is to actively support the development

of its own multinationals to hold the remaining 40% share of the economy. Third,

it is also vital to know that the FDI’s importance also stems from the fact that ever

more international trade is in fact induced by international investment. FDI is

also a large part of the booming global value chains (GVCs) or integrated global

production networks that are emerging, in some calculations already representing

Economic cooperation between Slovenia and China

121

about 70% of all international trade. Yet, this share may shrink following the

Covid-19 pandemic and ensuing rationalisation of such networks to lower risks

(for more, see Ch. 2.4.1.).

Several of the traditional motives for FDI apply to Slovenian firms’ investments in

China, and vice versa in case of Chinese ones in Slovenia. The number 1 motive

for Slovenian firms is market- and efficiency-seeking FDI (a large market, low

labour costs). Market-seeking investment frequently takes place in the form of

tariff-jumping factories (high tariffs or other types of protectionism). Recently,

the gaining of knowledge can also be addedarallel to technological advance of

Chinese firms, also the other way around; Slovenian investment in China in-

tended to acquire new knowledge. Investment cooperation is very important

since it seems that without local production it is, at least in the long run, impossi-

ble to sell products in the enormous China market. Another explanation concerns

the long and un-transparent customs procedures.

The idea of this chapter was to determine whether bilateral Slovenia–China FDI

has followed the growing importance of FDI as an instrument of globalisation

general y and whether Slovenia appeared on the Chinese map when China started

its Going Global strategy and BRI initiative, particularly Slovenia’s place in the

17+1 scheme (see Ch. 6).

Inward FDI110 does not play a very important role in Slovenia. The share of FDI in

GDP in 2019 was 33%, significantly less than in other comparable countries. The

growth of inward FDI averaged out at 11.8% between 1994 and 2019, where the

top investor countries came from the EU. Foreign direct investment by Chinese

firms in Slovenia is exceedingly modest, albeit oscil ating in terms of flows, yet

growing over the last few years. It is more important if the ultimate investing

country, not the first counterpart country, is taken into account because China

makes investments in Slovenia via branches in Luxemburg, for instance.

Investing abroad by Slovenian firms has been even less important since the stock

of outward FDI in GDP was just 13.7% in 2019, despite average growth of 13.9%

of such flows between 1994 and 2019. The major destination countries in this case

were not the EU, like with inward FDI, but the former Yugoslav republics (63%).

China is playing a marginal role, although its stock is slowly rising.

In 2018, Slovenian investments in China amounted to EUR 58 million and

Chinese direct investments in Slovenia EUR 357 million. Slovenian companies

110 All data are taken from the Bank of Slovenia, Direct Investment, 2020.

122

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

operating in China mainly come from the automotive, electrical and chemical

industries, pharmaceuticals, footwear and textile industries, trade and transport.

Table 11: Slovenian foreign direct investment in/to China (EUR million)

Stock of FDI in Slovenia,

2010

2015

2018

2019

Dec. 31 each year

Investing country

Total

7,893

11,612

15,254

16,008

EU(-28)

12,806

13,226

China

-0.4

3.0

3.9 (0.02%)

4.3 (0.03%)

2010

2015

2018

2019

Total all outward FDI

6,097

5,508

6,108

6,637

EU

2,330 (43%)

5,650 (4.8%)

6,119 (50.2%)

In China

14.4

35

56 (1%)

75 (1.1%)

Source: Bank of Slovenia, 2020, 39, 72.

Although FDI is a business activity, there may be some macroeconomic, even po-

litical considerations behind it as wel . This is particularly the case with countries

like China, where state sector and state interventionism are still very strong (see

Ch.s 2.4. and 2.7.). This may imply that such FDI is not only market-driven but

might also be political y induced. In relation to Slovenia, the underlying strategy

might be the diversification of economic ties away from the very high European

dependence. Second, it may be grasping opportunities in the fast-growing mar-

ket so as to become the locomotive of the global growth economy. In relation to

China, macro-economic and political considerations include »jumping« into the

EU markets through Slovenia, especial y by using the Port of Koper, or acquiring

the airport at Maribor (which however it turned out to be a failure), as a spring-

board into the EU. In such a way, China has also obtained insights and influence

concerning what is going on within the EU. Moreover, its investment in infra-

structure may be regarded as part of China’s flag ship project the Belt and Road

Initiative.

In terms of micro-economic motives, Chinese investment in Slovenian industry

does not depart much from its general motives for investing in Europe111; gaining

knowledge, getting access to technology and trademarks. Such motives are com-

bined with EU-market-seeking strategies.

111 Major motives being access to modern technology and know-how, but in view of BRI also to

infrastructure.

Economic cooperation between Slovenia and China

123

Slovenian investments in China are surprisingly extremely small compared to

both the FDI made by other EU members (see above) and because it started well

before Slovenia had become an independent state (see Ch.s 3 and 4). The main in-

itial motives for investing in China were to exploit the low labour costs local y and

to import such labour-intensive products back to Slovenia. This was combined

with the idea of overcoming the low quality of local semi-finished products or raw

materials to be exported later to Slovenia and built into final products for export

to European markets. In some cases, entering the local market by direct presence

was the only way of obtaining access to it due to China’s policy stimulating spill

over effects from foreign firms. In a few cases of semi-finished products, suppliers

to large multinational companies operating in China entered the market in order

to move closer to their ‘customers’ building their product into, say cars (‘induced

internationalisation’). Suppliers to the German car industry are very prominent in

Slovenia. Such firms have realised that the only way to stay competitive global y

or even to stay in business as a supplier is to follow German or other auto makers,

including into the Chinese market. Some firms were dissatisfied with the quality

of local products and thus entered into joint ventures (JV) with them or bought

local producers in order to ensure control over the quality.

Getting access to the huge local market was the next motive. Firms were also

clever in selecting the right form of investments, from whol y-owned to joint ven-

tures. In several cases, these forms have also changed over time as demanded by

experience or learning by doing. S. Petrič, the general manager of Kolektor, clearly

posited in his book: »If you enter the Chinese market by a greenfield investment,

you will have troubles from the beginning, if opt for a joint venture(JV), later«

(Petrič, 2016, 296). This was precisely why Kolektor disinvested from a certain

JV in China, while keeping on a whol y-owned one. Another businessman com-

plained that it is almost impossible to win legal proceedings in China. However,

after 8 years he was forced to correct himself, claiming to have already won the

legal proceedings, thereby showing how rapidly things are changing in China.

Despite all the long-term, deep-rooted motives to invest, Slovenian investments in

China are well below what other countries are doing in China which is, after the

USA, the number 2 location for FDI around the world. More than 30 Slovenian

companies have, as estimated by the Embassy of the Republic of Slovenia, rep-

resentative offices companies operating in China in the fields of automotive,

electro, chemical, footwear, textile, trade, and transport.112 A survey by Ivančič

(2016) revealed that only a few of the respondent firms had established a subsidi-

112 The list of investors in China is available here http://www.sloexport.si/en/search?MenuID=27

8&repcountry=China.

124

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

ary in China. The majority of them were importing from China (48%), exporting

(24%) and the remaining 28% had representative offices and subsidiaries of dif-

ferent types there. These include Le-tehnika113, Gorenje114, Domel115, Etol, Cablex,

Letrika, Kolektor, Krka116, Cosylab117 and others118.

The main activities of Slovenian companies in the Chinese market are the produc-

tion of footwear, products and semi products for the thermoplastics electronics

and electromechanical industry, products and components for the automotive in-

dustry, sales promotion and market operations, support for the purchasing activi-

ties of the parent company etc. Duol signed with the China National Sports Group

a contract on exclusive representation/agency for the Chinese market and a pre-

agreement on the construction of a temporary infrastructure object for the winter

Olympic games in Beijing in 2022 (valued at approximately EUR 25 million; see

Maselj, Čeh, 2017). Iskra Avoelektrika, later Letrika, entered the Chinese market

in 2012 (Iskra Suzhou) and is now building a new factory there. It is estimated

that Slovenian firms in China employ around 40 foreign workers and more than

1,600 Chinese.

Chinese FDI in Slovenia, although growing, is also very modest, in fact it is so

small that the Bank of Slovenia does not report it among the four most important

113 It was the first whol y-owned company (Sinoslo Technology) established by a Slovenian

company in 2002.

114 In 2017, Gorenje opened 15 new sales salons (Gorenje, 2019).

115 Also entering the local market in 2005 in order to get closer to its suppliers like Philips, Electrolux and Rowenta.

116 Krka and its Chinese partner Ningbo Menovo Pharmaceutical set up the joint venture Ningbo

Krka Menovo Pharmaceutical in 2017. Krka holds a 60% stake in the new company. Its ini-

tial capital will total EUR 30 million. The joint venture will also make products for Europe

and Krka’s other markets. In 2021 a new drug is going to be launched for a Chinese market

(Pregabalin) and more are in the process of registration. KRKA’s CEO Colarič is projecting

China to become in the next 5 years one among the most important markets. The objective

is to produce and register there as many products as possible. Before Krka, another pharma-

ceutical firm called Lek was active in China. After being taken over by Novartis, this aspect of Lek’s activity in China was terminated.

117 According to M. Pleško, the general manager and owner, Cosylab gained a larger deal in the

treatment of cancer with proton therapy and so was able to employ in its own company there

a top team of seven Chinese. The Chinese now have fewer than five proton centres, yet wish to

have 70 in the next 5 years. »With our software we can shorten their entry to the market from

five to two years« (see Bertoncelj 2018).

118 Due to data confidentiality, it is impossible to include a comprehensive list of such ventures.

In addition to some of the companies mentioned above, there were also: Alpina, Unior, EURO

PLUS engineering, Cablex, Gostol.

Economic cooperation between Slovenia and China

125

Asian investing countries119. Nevertheless, in Slovenia, around 110 companies

with 100% Chinese ownership and about 23 companies with mixed ownership

(including Chinese) have invested in Slovenia120. Most of these are restaurants

(27), followed by trading companies (26) and consulting (15).

This lagging behind in investment cooperation is surprising given the fast growth

of Chinese investment in Europe general y. Chinese investments have targeted the

flagships of European industry (such as Pirelli in 2015) and key strategic interests

(like the robot manufacturer KUKA (USD 5 billion by China’s Midea Group) and

already 14 European ports with a majority stake in 6 of them). This has led to a

sudden awakening among Europeans that the entire Single Market may be weak-

ened by the lack of coordination and failure to anticipate the acccumulated impact

of Chinese investments (see Fabry, 2019).

Chinese outward FDI in Slovenia is also modest compared to that other CEECs.

Of all FDI in this region, Slovenia has attracted just 0.3%. Obviously, the motives

for Chinese investment in CEE vary somewhat from those in other EU countries,

where the driving motive is access to knowledge/technology. Among CEECs,

only Estonia, Macedonia, Latvia and Montenegro are hosting less Chinese FDI

than Slovenia. Such FDI is more than 100 times higher in Hungary alone (and in

Poland over 60 times). Chinese investment in Slovenia constitutes only 50% of

the FDI in Croatia and less than that in Bosnia and Herzegovina and Albania by

way of comparison (see Istenič 2018, 5 and HKTDC 2016). Their share in total

outward FDI nevertheless grew from an extremely low 0.3% in 2012 (having ap-

peared for the first time in 2002) to a still very low 0.8% in 2016 or EUR 11 million

(Bank of Slovenia, 2017, 19). This level is almost four times smaller than Slovenia’s

FDI in China. The situation is in practice a little better because some investments

are not registered as Chinese since they are undertaken by Chinese firms located

in other countries or are Slovenian companies located abroad.

Chinese investors believe Slovenia is very attractive due to its strategic location

and well-educated workforce. Their investments in Slovenia are typical y strategic,

119 But we should also consider that some of these investments are not registered as coming

from China since Chinese companies acquiring Slovenian ones are not located in China but

in other countries (for instance, the takeover of Outfit 7 for USD 1 billion). The situation is

nevertheless changing after the major takeover of Gorenje by the Chinese company Hisense

in 2018 for about EUR 300 million (see later).

120 See the list found at Sloexport Search.

126

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

they wish to acquire new modern technology and knowledge121. Some cases are

presented below122:

• The biggest Chinese FDI in Slovenia is the purchase of Outfit 7123 from Slo-

venian owners for USD 1 billion by the United Luck Consortium, yet after 4

days sold to Zhejiang Jinke Peroxide124, after the acquisition with new name

Zhejiang Jinke Culture Industry.

• Hinsense took over the household appliances manufacturer Gorenje, beco-

ming the second-largest Chinese investment in Slovenia.125

• The investment in the Slovenian high-tech company Elaphe126 (producing in-

-wheel electric motors).

• A joint venture with Pipistrel d.o.o. Ajdovščina, a Slovenian light-aircraft manufacturer, was announced. After almost 15 years’ experience dealing with the

Chinese, a contract was signed for the production of advanced light aircraft.

The original idea of a simultaneous JV investment by the Chinese firm Sino in

Pipistrel in Slovenia later col apsed due to opposition to Chinese co-ownership

in Pipistrel in Slovenia, yet a EUR 350 million deal is underway with another

partner in China.

121 The only different examples are the investment in DINOS (although waste processing is also

becoming quite technology-intensive), Javna razsvetljava, and Airport Maribor.

122 If not otherwise stated, data according to Finance, 2018 (22–23).

123 The company best known for having created the media application and franchise Talking Tom and Friends, which have been downloaded over 8 billion times.

124 A Chinese firm located in Cyprus.

125 In May 2019, Hisense announced its takeover bid for Gorenje, offering EUR 12 per share,

which valued the company at about EUR 293 million. Hisense acquired 62.5% of all issued

Gorenje shares. By July 2018, it has acquired over 95% of Gorenje shares. The new owner

plans to make Gorenje a research, development and production centre for the company in

Europe. The new facility – a television plant – adjacent to the current Gorenje complex at the

end of 2020 while Gorenje Valjevo will expand its production and construction of additional

production hal s to become the cooling centre of the Hisense Group in Europe. Parallel to the

ownership changes, organisational ones also started. In March 2019, Gorenje was transformed

from a joint-stock company into a limited liability company in order to simplify its corporate

governance and pave the way for more efficient management and decision-making within the

Group, with a view to reaping the synergies with Hisense and cutting its operating expenses.

Some of Gorenje sales companies abroad are already being integrated with Hisense’s sales

companies. As a result of the business transformation and restructuring, merging of functions,

thereby decreasing the number of management levels, and business optimisation, the number

of employees in support services of the Group has decreased as part of its reorganisation and

business optimisation process.

126 According to the agreement, Zhejiang Asia-Pacific Mechanical & Electronic APG will become a 20% owner of the Slovenian company and strengthen it with EUR 10 million of fresh

capital (Delo, 2015). This cooperation is strategical y important in view of the big long-term

strategies of Chinese automakers: boosting exports of cars, particularly electric ones, to Europe.

Economic cooperation between Slovenia and China

127

• TAM Europe: TAM Durabus, a Chinese-Dutch JV, re-launched bus produc-

tion in the city of Maribor in the spring of 2013, specialising in the production

of electrical busses. The company is however not in good shape and producing

losses, although the general manager is optimistic about the future.

• Fotona, also a hi-tech producer (laser technology), was bought from the Slove-

nian state by the two American firms Gores Group and Technology4Medicine

in 2014 only to be sold 3 years later to the Chinese financial fund Agic Capital.

The company is very successful, increasing its profits. In 2017, it took over two

sales companies and set up the subsidiary Fotona China, after the USA being

the second-most important market.

• Arctur, offering supercomputer services, also has a Chinese co-owner.

• Acies Bio, a biotechnology firm, is 22% (EUR 5 million) in Chinese hands (De-

sano, a generic pharmaceutical firm) and is operating profitably.

• Huawei is also present in Slovenia with a small company that employs just one

person.

• The China-Central and Eastern Europe Investment Cooperation Fund and the

China-CEE Fund spent EUR 22 million in 2016 to obtain an 84.1% share in

Javna razsvetljava (lighting, signalisation, engineering and electricity produc-

tion) that is still operating at a loss.

• Maribor airport, the second-largest airport in Slovenia, was purchased by SHS

Aviation for EUR 7 million and was also obliged to pay an additional EUR

100,000 concession fee each month, a condition it struggled to meet in the last

quarter of 2018. It is not operating profitably127.

• DINOS (waste processing) was bought by the Chinese firm Chiho Tiande

Group, specialising in prefabricating waste, from the original German owners

(Scholz) that was facing a severe crisis. Under the new ownership, Dinos has

started to operate profitably.

The experiences of investors from both sides clearly show that:

• it is fruitful to ensure two-way, reciprocal (investment) cooperation; Chinese

firms in Slovenia and Slovenian firms with the same partners in China. Cases

127 In January 2019, SHS Aviation terminated its 15-year concession of the airport, less than 2

years after taking it over in March 2017. Despite not delivering on most of what it promised,

including transforming Maribor Airport into a hub for Chinese tourists, the operator ex-

pressed its unhappiness with delays by the central government in adopting a zoning plan,

which would allow it to begin its massive EUR 660 million airport redevelopment project

(extending the airport track and expanding the airport with other facilities so the airport

could accept intercontinental flights), which was not very welcomed by the local population

(https://www.vecer.com/negotova-usoda-mariborskega-letalisca-6689511).





128

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

of such cooperation are (Pipistrel128, Arctur129, Elaphe130). In such a way, parti-

cularly suitable for Hi-Tech firms providing modern technology or developing

it together with Chinese partners, two objectives can be achieved: expansion

within the Chinese market by Slovenian firms and enhancing exports to the

EU or global markets general y by Chinese firms.

• Concentrating cooperation in specific niches, particularly Hi-Tech, is the best

for smaller Slovenian firms unable to compete on economies of either scale or

scope.

If the intention is to attract more of such investments, one must first consider that

they are an instrument of China’s economic transformation leading to more con-

sumption-based growth and higher value-added industries, including technology

and services. Second, it is necessary to try to find a balance between Chinese out-

ward investment motives131 and the interest of Slovenia on the other side.

4.7. SOME PROBLEMS AND HOW TO OVERCOME THEM

Slovenian firms cooperating with China claim that entering the Chinese market

is harder (64%) than doing business in other markets. This implies that firms

are facing more problems there. These include poor competitiveness, a lack of

financial resources (for investments), cultural and language barriers, and a lack

128 Later, the co-ownership in Pipistrel col apsed.

129 This high-technology firm active in high-performance computing can also promote Hi-Tech

goods exports from China to Europe, holding exclusive export rights for Europe.

130 The leading firms producing in-wheel electric motors which are considered as the future in

electric cars?

131 Their motives for investing in Europe are, according to Seaman et al. (2017, 9-11), to:

• Acquire technology, to include established high-tech assets, emerging technologies and

know-how;

• Access the European market, for Chinese goods and services;

• Access to third markets via European corporate networks, especial y in Latin

• America and Africa;

• Acquire brand names to improve the marketability of Chinese products both abroad and for

the Chinese market;

• Integrate regional and global value chains in production, knowledge and transport;

• Enter a stable legal, regulatory and political environment, particularly in the context of global disruption and political uncertainty;

• Seek political/diplomatic influence in a region that in aggregate terms remains the second-largest economy after the USA.

Economic cooperation between Slovenia and China

129

of trust132. Final y, firms have also run into problems after poor preparations to

enter the Chinese market. Quite a number of them reported they did not consult

anybody prior to entering that market (see Ivančič 2016, 61, 65, 70).

On the macro economic and political levels, the problems related to China–CEE

cooperation, of which Slovenia forms part, were listed by Istenič (2018) as follows:

• »Chinese investment in CEE will raise Beijing’s ability to wield political influ-

ence over the decision-making process in the EU. It will »divide« the CEE from

the rest of the EU due to states’ competition to attract Chinese investment,

which might significantly affect the EU’s unity and coherence and weaken the

European leverage vis-à-vis China on matters of strategic importance.

• Chinese acquisition of key/strategic industries critical to a nation’s economic

growth and international competitiveness, may endanger the national security

of the individual CEE country in question.

• Levels of borrowing from China might become unsustainable as the expected

benefits and economic viability of projects are uncertain.

• Trade imbalances with China and the lack of investment reciprocity due to

limited access to the Chinese market are creating uncertainty and may bring

serious challenges in the future. An open EU and thus Slovenian market has

not been met by the same openness on the Chinese side, which applies a less

transparent, selective FDI channelling approach to some strategic sectors«.

Some of these concerns are also relevant for the Slovenia–China relationship.

The danger of key strategic industries being acquired is less relevant, perhaps ex-

cept for the Port of Koper and the related railway. Almost no money is borrowed

money from China in Slovenia and the nonexistence of any Chinese bank in the

country133 means that its future potential is also very low. Trade and investment

imbalances may be a problem, but it is up to Slovenian companies to enhance their

competitiveness, including in sectors that respond to the evolving new demands

of Chinese consumers and promote trilateral cooperation with large multination-

als operating in China so as to overcome the barrier of smallness and thereby

132 Interestingly, the language problem was given the same rating by firms having employees

mastering Mandarin Chinese and those lacking such cadre. Language barriers may gradual y

decrease since knowledge of Mandarin has been improving quite rapidly in Slovenia (the

role of the Sinology Department at the Faculty of Arts and many courses by the Confucius

Institute at the Faculty of Economics).

133 The presence of such a bank could stimulate bilateral cooperation such as membership in

the Asian Infrastructural Investment Bank (AIIB) of which Slovenia is not a member even

though 21 EU member countries are (including all CEECs, except Slovenia and Croatia).

According to Lipušček (interview), “it is impossible to develop strategic cooperation with

China not being a member of AIIB”.

130

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

narrow the imbalances. Trilateral cooperation with some large EU member coun-

tries that enjoy strong cooperation with China, particularly given that Slovenian

companies are important suppliers of semi products particularly to German firms

in the automotive sector, is another, insufficiently utilised opportunity.

In spite of the quite fast growth of trade and investment cooperation with China

in the last two decades, such cooperation seems not to be grasping all of the op-

portunities brought by China’s growing importance in the global economy and

even, perhaps, to be lagging behind efforts on the political/institutional level.

Slovenia has not grabbed the chance to attract more Chinese investments despite

of their spectacular growth in the past decade or so, nor the opportunity to en-

hance its exports to China as a crisis-exit instrument. Lastly, there is also lagging

behind in the opportunities presented by regional programmes of the EU like the

EU SME Centre Peking134 relevant to most Slovenian firms since even the largest

ones are small on the global or Chinese scale. It provides a comprehensive range

of cost-free hands-on support free services to SMEs, assisting them to establish,

develop and maintain commercial activities in the Chinese market. By offering

support with the provision of information, confidential advice, networking events

and training, the EU SME Centre focuses on the crucial early stages of SMEs’

market penetration strategy.

The China IPR SME Helpdesk, also under the auspices of the European

Commission, provides practical information and once again cost-free assistance

to European companies in protecting and enforcing intellectual property rights

in China and could also be used more in the promotion of bilateral cooperation.

China remains one of the most problematic countries in terms of local market

protectionism, human rights, intellectual property protection/theft135. Therefore,

Slovenian companies must be alert and safeguard their interests and follow EU

policies in this regard (more on intellectual property developments in China, see

Ch.s 2.7.3 and 2.7.5.).

Slovenian companies can also use the services of Eurochambres, the associa-

tion of 43 European Chambers of Commerce that was founded in 1958. Under

its auspices, several programmes are in place to support European companies in

134 See http://www.ealink.eu/business-support/partners/eu-sms-centre.

135 Negative effects at the European level of cyber theft of trade secrets could amount to about EUR 60 billion in lost economic growth, resulting in the loss of competitiveness, jobs and

reduced R&D investments. More specifical y, 289,000 jobs could be at risk in 2018 in Europe

and 1 million jobs could be at risk by 2025 (PWC, 2018, 11).

Economic cooperation between Slovenia and China

131

penetrating foreign markets. Membership of Slovenian companies in such an or-

ganisation could prove very instrumental for facilitating cooperation.

Potential is also held by the EU–China co-funding mechanism for research and

innovation, an overarching research framework arrangement. China is becoming increasingly strong in many technologies, making it necessary to increasingly

address cooperation as a two-way game. Slovenian companies might invest in ad-

vanced Chinese innovation centres/companies also to learn from them.

There are several explanations for Slovenia lagging behind in cooperation with

China compared to some other EU members. On one hand, there are objective

factors like the Slovenian economy’s small size and comparatively small size of

its firms. A further factor is the large geographical and cultural distance and his-

torical y strong European leaning towards international political and economic

cooperation. On the other hand, several subjective explanations and biases are

preventing any expansion of future cooperation. The first is the lack of knowledge

about China in general, associated with the distance problem and Slovenians’

‘smallness/inferiority complex’136 where they view themselves as a small country

with many limitations preventing closer cooperation with such a big country as

China is. A survey among managers and graduate students showed that managers

rated their knowledge about Chinese culture (together with Indian) the lowest.

Not surprisingly, they regarded improving such knowledge as the most impor-

tant way of avoiding mistakes in business relationships (Kralj and Svetličič, 2017,

262–263). Enterprises still lack the knowledge and skil s to successful y overcome

all of the risks entailed in international operations. They are increasingly aware of

different mindsets and have started to articulate the need to learn and understand

the background of the Chinese tradition. The different philosophical frameworks

between China and the West are reflected in their distinct approaches to manag-

ing relations with the outside world (Lajčiak, 2017). Understanding institutional

change and the ongoing transition in China is not only becoming a crucial chal-

lenge for theory makers and business strategists but enterprises as wel . Slovenian

enterprises, although used to transition, (still) have to learn a lot about doing

business with China (Polajžer & Turk, 2013; Ivančič, 2009).

China is still typicaly seen as a less developed economy, with citizens only able

to afford cheaper products. The size of the middle class (for more, see Ch. 5.) and

136 It is less and less a problem for the new generation of managers/entrepreneurs who are

gaining much more self-confidence also accumulated through their global mind-sets and

better training.

132

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

particularly the large size of the very rich Chinese is underestimated137. Their con-

sumption patterns are more and more like to be those of more affluent European

or American. Firms also do not take into consideration the advantages of an origin

in Europe since »Made in the EU« is very appealing in China. Chinese firms like

to cooperate with Europeans in order to boost their sales at home in the local mar-

ket. While firms have become better informed, even here many stereotypes exist

regarding China as a less reliable partner, producing goods of lower quality, being

at a lower level of technology development, with low health safety/environmental

standards that in turn make Chinese products less reliable for Slovenian customers.

The public image still holds the traditional biases and is unable to of technology

perceive the sea changes in China’s innovations and technology sector, although

China remains behind the USA in the technology sector138. Such attitudes are

partly due to the persisting stereotypes and insufficient knowledge of Mandarin

Chinese in particular, although several firms active in China do have experts who

speak Mandarin.139 There is also a fear that in any cooperation with the Chinese

they would insist on their ways of doing things, management styles, and standards

which do not match those in Europe. Firms are entering into cooperation inad-

equately prepared. They lack knowledge about their Chinese partners and their

subcontractors. It is not infrequently that final contract execution depends not on

the firm with which one signs a contract, but one of several subcontractors in the

whole chain. The last in the chain to execute the contract is paid much less and

hence the performance is not up to the desired standards (interview with Tanja

Drobnič, SPIRIT Slovenia).

To properly promote cooperation with countries like China, a lot of time, money

and human resources must be invested. This is particularly a problem for SMEs

lacking in capital and human resources. In response, a manual was prepared by

the Slovenian Chamber of Industry and Commerce on how to do business with

China (see Polajžer and Turk 2013).

Success does not come overnight, but conclusion of the deal cannot be expected in less

than a year. Trust is crucial; therefore, it is necessary to visit partners in China. Deals

cannot be made over a distance without personal contacts. It is not enough to send

137 There were 373 billionaires in China in 2017 according to Forbes. Available at https://www.

forbes.com/billionaires/#753e5500251c.

138 According to The Economist, it is 42% less technological powerful than the USA (only 15%

in 2012), but it is catching up fast. At the present pace, China’s tech industry will be at parity with America’s in 10–15 years (17 February 2018, 61).

139 Among 75 companies surveyed, up to 60% of larger enterprises employ those who know

Mandarin (Ivančič, 2016, 55).

Economic cooperation between Slovenia and China

133

salesmen to China, the company director must travel there to establish a relationship.

Sending a salesman might be interpreted as underestimating the Chinese partner and

underestimating the relationship. It is important to rely on agents (implementation

of the quanxi principle; see Ch. 8 for details on overcoming cross-cultural problems)

and, final y, top management must conduct the biggest negotiations. This builds con-

fidence and may lead to other doors being opened. Many in Slovenia see huge poten-

tial in the Chinese market, but are not prepared to invest either time or money, let

alone acquire the numerous certificates and foreign trade licences required. There is

a lot of bureaucracy in China. Corruption has been a major problem, although it has

been decreasing in recent times. This concerns the bribery of government officials and

it is under the jurisdiction of local mediators that accelerate the decisions of gover-

nment agencies. Slovenian companies not do usual y deal with them directly. When

one is seriously in business with the Chinese, it is necessary to have a local interpreter.

More and more decision-makers on the Chinese side understand English, yet only a

handful says language is a barrier (ibid., 2013).

Chinese firms also encounter problems while operating in Slovenia. One is pay-

ment discipline and the judicial system. The country’s favourable geographic posi-

tion including the Port of Koper alone are not enough to convince Chinese capital.

Chinese partners have observed a significant deterioration in payment discipline

and considerable mistrust among business partners in the past 5 years in Slovenia.

Some Slovenian suppliers even require payments in advance for goods that are

ordered, even though all payment terms are longer than 1 month (see Kos, 2014).

»Large Chinese diasporas in some of the CEE states offer China not only a higher

motivation for its OFDI but also present an important vehicle for utilising China’s

public diplomacy. Migrants of Chinese origin can promote Chinese culture and

lobby for China’s political and economic interests within host states« (Wong and

Tan, 2017: 1–12). While no reliable data can be found on the exact number of

Chinese in any particular CEE country, it is estimated that the majority, namely

15–20,000, live in Hungary, with about 14,000 in Romania, 8,000 in Poland, 6,000

in the Czech Republic, 5,000 in Bulgaria, 2,000 each in Serbia and Slovakia, and

less in other CEE countries. In Serbia, the Chinese were warmly received during

Miloševič’s regime, welcoming up to 50,000 in 2000 (Nyíri, 2011: 247, 249). In

contrast, in Slovenia they number only around 1,000 (Maselj and Čeh, 2017, 3)140.

Such diaspora can stimulate cooperation, yet its soft power influence might also

be negative. The majority of Hungarians are opposed to Chinese immigration,

similar to Poles. CEE citizens distrust the Chinese regime, have different percep-

tions of human rights, and disapprove of China’s behaviour towards Tibet and

140 The number of residents of Slovenia holding Chinese citizenship in the period 1996–2009

increased from 103 in 1996 to 806 in 2009 (Bofulin, 2016, 28).

134

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Taiwan. They are also increasingly concerned about Chinese investments in the

energy sector, the limited transparency of Chinese-funded projects, allegations

of illicit payments and blurry environmental impacts (Darby, 2016; Makocki and

Nechev, 2017).

Another problem is that Slovenian companies are not paying sufficient attention

to the macro political/economic plans China is making for its future develop-

ment. This led the Chinese ambassador in Slovenia to suggest to those compa-

nies wishing to explore the Chinese market or attract Chinese investment to pay

close attention to China’s national economic development plan for 2016– 2020

(currently for 2021–2025, added by SM). It will help such companies share the

steering wheel guiding China’s future development. This refers to the develop-

ment concept of »Innovation, Coordination, Green Development, Opening Up

and Sharing«, along with the action plan »Made in China 2025« and »Internet+«,

which show that the Internet, ocean and green economy are becoming key de-

velopment points (see Interview with H.E. YE Hao, Ambassador of the People’s

Republic of China in Slovenia in Fister, 2016).





Future Potential for Economic Cooperation between Slovenia and China

135

5. FUTURE POTENTIAL FOR ECONOMIC COOPERATION

BETWEEN SLOVENIA AND CHINA

In view of the tectonic changes in the global economy, in the future the Slovenia–

China relationship must be designed more strategical y, taking account of po-

tential transformations of the global economy/system and China’s changing role

within that. A long-term visionary approach is needed, along with the sugges-

tion by Gros et al. »that Europe should take a more pro-active approach vis-à-vis

China, which is bound to become not only the largest world economy but also the

most important trade partner for Europe« (2013, 113).

In short, Slovenia should gain substantial y from the elevating the importance of

relations with China in the future. Now, Slovenia is lagging behind EU average

shares of total extra EU import from and export to China. This should also be

considered while designing Slovenian development policies. One way of looking

at this question is to see the present situation, the share of exports and imports in

total Slovenia exports and imports as compared to:

• the share of China in world GDP; and

• its shares in global trade.

Regarding GDP, huge difference exists: China’s share in global GDP in 2017 was

11.9% (in PPP 23.1%) while it absorbed only 1.12% of Slovenia’s exports. In terms

of China’s merchandise imports, its share in global imports has grown spectacu-

larly from 0.9% in 1973 to 10.2% 141 in 2017 (WTO, 2016; 93 and WTO, 2018, 19).

In such a way, China is approaching the USA as the largest importer in the world

(13.4%), followed by the EU-28 (14.8%; http://ec.europa.eu/eurostat/statistics-ex-

plained/index.php/International_trade_in_goods#). Slovenia’s exports to China are thus lagging well behind the import absorption capacity of China. If Slovenia

wishes to more proactively grasp China’s import absorption capacity, exports to

China should rise substantial y. The future projections further reinforce the above

conclusion. China is expected to have the biggest share in global GDP soon (for

141 China's share in the global import of services is also high at 11.7%, following the EU-28

(20.1% and the USA 13.1% (WTO, 2018, 22).

136

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

more, see Ch. 2). The international trade projections make such an increase in

exports to China even more urgent.

Table 12: Shares of world exports and imports of all goods and services by countries/

groups, 2004–2030 (in %)

Exports

Imports

2004

2030

2004

2030

China

6.7

19.6

5.7

12.1

W. Europe

42.3

26.3

42.5

31.0

Source: Derived from the GTAP Model Results (see Anderson and Strutt, 2011, 28).

In view of China’s recent strategy on »domestic circulation« that emphasises do-

mestic consumption as a major driver of growth, stimulating FDI in China is be-

coming extra important in order to grasp such increasing domestic demand with

local market operations.

The second relevant consideration is where will future consumption be coming

from. It has been forecasted that in 2030 developing countries will constitute 50% of

global consumption (without China 35%; Lund et al., 2019). The emerging-market mid-

dle class as the major source of consumption – defined as households with a daily ex-

penditure of USD 10–100 per person at PPP – is projected to double its share of global

consumption from one-third to two-thirds by 2050. Its wil grow in size from 1.8 bil-

lion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030142. The bulk of this

growth will come from Asia: by 2030, Asia will represent 66% of the global mid-

dle-class population and 59% of middle-class consumption, compared to 28% and

23%, respectively, in 2009 (Pezzini 2012).

What also makes it interesting for business is that it is the most rapidly growing

segment of consumption. In terms of consumption expenditure, by 2030 China

and India will have by far the biggest middle classes in the world, while the middle

class in the USA will be ranked third in terms of its consumption power, followed

by Indonesia, which does not even rank in the top 10 today (NIC, 2012). Europe

and North America’s share of global middle-class consumption is expected to fall

from 64% in 2009 to 30% in 2030. By contrast, the share in consumption of the

142 Projections by the World Data Lab are even more optimistic, predicting that the middle class could reach some 4 billion people by the end of 2020 and 5.3 billion people by 2030. The

middle-class markets in China and India in 2030 will account for USD 14.1 trillion and USD

12.3 trillion, respectively, comparable in size to the USA’s middle-class market at that time of USD 15.9 trillion (Kharas et al., 2018).





Future Potential for Economic Cooperation between Slovenia and China

137

Asia-Pacific middle class is estimated to rise from 23% to 59% over the same pe-

riod. Some estimates see middle-class consumption in North America and Europe

rising by only 0.6% a year over the next couple of decades (Gros et al., 2013, 74).

Figure 38: Shares of global middle class projections, 2000–2050

Source: Kharas and Hamel, 2010, 29.

Today, on the other hand, the majority of consumption by the global middle class

is accounted by the EU and the USA (approximately 35% while China’s middle

class share is only 10%). In 2000, Asia (excluding Japan) only accounted for 10%

of global middle-class spending. By 2040, this could reach 40% and it might con-

tinue to rise to almost 60% in the long term (Kharas, 2010, 28). If this is what

future consumption is to look like, then the share of Slovenia’s exports to China

in total exports must increase substantial y to get at least a very small slice of the

newly emerging consumer cake. The Asian middle class will namely be one of the

biggest drivers of global economic growth.

Figure 39: China’s consumption growth over the next 15 years might be comparable

with that of the USA and Western Europe (incremental growth in consumption, USD

trillion, constant 2016 prices)

Source: McKinsey, 2019c, 115.



138

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Nevertheless, at the moment China consumes fewer imported consumer goods

than developed countries, meaning there is great untapped potential in the fu-

ture to increase the country’s consumption of imported goods. But by 2030, the

Chinese working-age population will account for 12 cents in every dol ar of urban

consumption worldwide (Manyika et al., 2020).

Figure 40: Despite fast-growing private consumption, China imports fewer consumer

goods than developed economies do (%; USD billion)

Source: McKinsey, 2019c, 116.

We tend to forget that the Chinese are consuming more and more luxury goods.

According to the China Luxury Report 2019 (McKinsey, 2019b), Chinese consumers are set to contribute almost two-thirds of the global growth in luxury

spending. China delivered over half the global growth seen in luxury spending

between 2012 and 2018, and is expected to deliver 65% of the world’s additional

spending heading into 2025. Also by that year, Chinese consumers’ expenditure is

anticipated to almost double to USD 179 billion. China is expected to be respon-

sible for 65% of the world’s luxury spending by 2025 when 40% of such spending

will be made by Chinese consumers. The majority of them, around 70% in fact,

will be doing their luxury spending overseas, a result of their increasing affinity

for outbound travel and the price differential arising from China’s import tax re-

gime and pricing policies of the country’s own brands’.

The next major challenge is to catch opportunities at the right time. The biggest

problem in the past was that the potential held by bilateral trade and investment

were discovered only quite late, too late if one wishes to benefit from first-mover

Future Potential for Economic Cooperation between Slovenia and China

139

advantages, which often prove to be very useful.143 Latecomers get the ‘crumbs

that fall off the table’.

Despite the spectacular growth enjoyed by the Chinese economy in the last four

decades, Slovenia–China economic relations, even if growing fast over the last

decade:

• are lagging well behind potential, which is surprising in view of the histo-

rical y very early connections (already in the 18th century) and leading role

Slovenia had in the cooperation with China during the days of Yugoslavia;

• have not been given appropriate attention as a high priority in Slovenia’s fo-

reign policy orientation due to it being preoccupied by joining the EU and

NATO and first getting away and then returning to the Balkans. Even after

BRICS was established, when ‘all of the world’ sought to stimulate coopera-

tion with China, Slovenia still did not have it a major priority for economic

cooperation;

• have not been relied on as a form of crisis-exit instrument, noting that du-

ring the financial crisis the Chinese economy survived almost without any

‘bruises’;

• are also lagging behind Slovenia’s very strong international economic involve-

ment since the share of trade in GDP is over 146% while the share of exports

to China in total exports is just around 1% (imports 3%);

• are particularly lagging in cooperation with regard to both inward and ou-

tward FDI, especial y given the very strong internationalisation of Chinese

firms in the global and recently particularly the EU market and being the

number 2 country in inward FDI in the world. There are also vast possibi-

lities in developing global value chains with Chinese firms or others in, say,

triangular cooperation. FDI is important because much trade is actual y indu-

ced by earlier investment cooperation or based on GVCs which might also be

investment-based;

• have missed the time to grasp the advantages of being a first-mover in the

Chinese market so as to at least partly reduce the shortcomings of small firms

and a small economy; and

• have insufficiently utilised the opportunities offered by the 17+1 initiative due

to an approach that may be described as too little, too late, and not proactive

enough.

143 »Anyone who has been with the Chinese up to now is treated better or at least as equal. Soon the Chinese will not be looking at those who will take too long to deal with that giant market, or offer lower quality goods than the Chinese can produce themselves, from above« (M.

Pleško, director and co-founder of Cosylab).

140

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The reasons for these lags or missed opportunities are:

• the lack of geostrategic political wisdom in finding the right place in the pre-

sent restructuring of the global powers, while also following the interests of

Slovenia as a member of the EU and its bloody national economic interests

»rather than wavering amateurishly between influential centers of power and

colliding in latter with the interests of powerful forces« (see Kovač, 2020, 35);

• general attitudinal barriers and stereotypes regarding China, which is mostly

seen as a less developed, technological y underdeveloped country whose con-

sumers are hence less demanding. These stereotypical attitudes have recently

started to change as part of a friendlier climate for cooperation, yet have again

deteriorated during the pandemic;

• the lack of knowledge about China’s development in the last decades due to

the large geographical and cross-cultural distance (macro political/economic

and firm level);

• the dominant orientation towards Europe given that the major political goal

after independence was to join both the EU and NATO. Along the way, it was

forgotten that the necessary internationalisation of a small open economy de-

mands »walking on two legs«, both European and global (Svetličič, 1993);

• objective factors, like i) Slovenian companies’ inferior competitiveness compa-

red to their technological y more advanced multinational rivals from Western

countries; and ii) the mix of a small economy and small firms creates a barrier

to cooperation with such a large market as China’s; and

• not least the fears held by Slovenians that the Chinese might come to dominate

certain infrastructure objects in Slovenia (port, railway) if allowed to build

them.

The promotion of bilateral cooperation is another instrument of the diversifica-

tion needed in economic ties, currently firmly linked to the EU. By strengthening

economic cooperation with China, Slovenia can reduce its EU dependence and

thereby may become more resilient. Stil , it is important to be aware that with

China good political relations are a first step in any successful economic coopera-

tion. It holds greater weight than most other countries.

This makes it crucial to be able to find the right place among today’s mixing of the

powerful cards on the global geostrategic map, to be able to maintain the correct

balance between the interests of Slovenia and those of China. As B. Kovač nicely

expressed in his magazine column, »Slovenia used to have a better understanding

of non-alignment and economic equidistance, when and how to protect its own

interests so as not to harm others. We obviously can’t do that anymore today. / …/

In 2016, we left China in front of the Port of Koper, in 2020 without hesitation we

followed the interests of the USA to clumsily stop Huawei’s 5G. /…/ and stopped

Chinese firms from bidding for construction of the second track. None of the

Future Potential for Economic Cooperation between Slovenia and China

141

above was necessary. Therefore, the current moves will not be without conse-

quences. The port will probably shed jobs, Gorenje may lose in its development,

Slovenian companies in China will face restrictions« (Kovač, 2020, 35).

The signing of the Joint Declaration with USA on 5th-generation Internet technol-

ogy in August 2020, inter alia stipulating that suppliers and their suppliers must

be scrutinised will act as a substantial barrier against cooperation with China’s

Huawei. It implies, among others, the transparency of their ownership, respect

for intellectual property rights and whether they are bound by legislation requir-

ing transparency of corporate governance. It in fact keeps Huawei out of the 5G

market in Slovenia, which will directly worsen Slovenia relations with China and

probably also hurt Slovenia economic interests144. Prime Minister Janša’s betting

on the election win by Donald Trump is implicitly supporting his tough policy on

China. Not congratulating President Elect Joe Biden, even insulting him, claiming

him as the weakest US president, would substantial y deteriorate long-term rela-

tions with the USA and indirectly also with China by damaging Slovenia’s image/

reputation in the EU and in the world in general. Siding with illiberal democracies

(Hungary and Poland) is only adding to this.

To conclude: enhancing economic and political cooperation with China must be

one of Slovenia’s top priorities in the future. Not simply because of its growing

role economical y but also political y in view of the changing power structure

in the world with China well on its way to assuming a leading role in the future.

Neglecting this would hurt Slovenia’s national interests in the long run and its

resilience to unexpected external shocks, that is so strongly EU dependent.

144 Huawei’s exclusion from the list of potential providers of 5G equipment is expected to have at least three major impacts on the Slovenian economy:

1. Impact on increased 5G investment costs due to limited competition,

2. Impact on the slowdown of the 5G rol out due to the increased investment costs leading to an increased share of the population left without access to a 5G network,

3. Impact on the loss of productivity and permanent loss in GDP due to a slower rol out of the 5G network.



Our calculations show that restricting competition in the 5G infrastructure equipment will

lead to an overall increase in building the national 5G network in the range of between EUR

18 mil ion and EUR 57 mil ion in the period 2021–2026. In our central cost scenario, which

assumes an increase in equipment costs by 13.3%, restricted competition will lead to a total increase in capex for all telecom services providers by more than EUR 37 mil ion as opposed to the baseline scenario. Translated to euros, lower economic growth due to delays in the 5G rol out and the associated slower technological growth reduces GDP by between EUR 220 mil ion and

EUR 460 mil ion in 2030. Cumulatively, GDP losses over the period 2021–2030 will be in the

range of EUR 1.7 bil ion to EUR 3.7 bil ion (Damijan et al., 2020).





142

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

6. THE 17+1 INITIATIVE

6.1. GENERAL FRAMEWORK

The 16+1 scheme is an initiative of the People’s Republic of China aimed at in-

tensifying and expanding cooperation with 11 EU member states and 5 Balkan

countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic,

Estonia, Hungary, Latvia, Lithuania, North Macedonia, Montenegro, Poland,

Romania, Serbia, Slovakia, Slovenia). The initiative was inaugurated by the first

16+1 Summit held in Warsaw, Poland, in 2012. The original 16+1 changed to

17+1 when Greece joined at the Dubrovnik meeting in 2019. It is regarded by the

Chinese as »one of the most important achievements« (Tianping, 2017) and has

in fact been integrated into the One Belt One Road Initiative (BRI or OBOR145),

China’s big long-term strategy for materialising China’s advantages in the world.

In a way, it may be regarded as an early step in its efforts to connect the Port of

Piraeus acquired by the Chinese firms COSCO via Macedonia to the proposed

high-speed rail link running between Belgrade and Budapest, and to then direct

it into the Western side of the continent.

The scheme may be regarded as a way for the former socialist countries to become

more familiar with the Chinese, which is vital if they are to overcome the region’s

pervious ignorance146. Establishment of the 16+1 scheme has begun to change this

145 It aims to facilitate economic development in a vast region covering sub-regions in Asia,

Europe and Africa and to promote greater integration among the 60-plus countries along the

Belt and Road (Huang, 2016). CEECs that provide a strategic link between Asia and Western

Europe are vital to the success of the BRI (HKTDC, 2016, p. 2, in Jaklič & Svetličič, 2019).

146 Central and Eastern Europe has long been absent from the Chinese going out strategy. The

CEE countries remain unknown, if not mysterious, among most Chinese elites. Most Chinese

businesses are only vaguely aware of the existence of (let alone the vast differences among) the 16 CEE countries (…). This neglect has started to change in early 2010s with the introduction

of 1+16 formula in Warsaw in 2012, supposed to become a kind of foothold in the European

Union – China has been »trying to parlay its economic heft into bigger diplomatic influence

in Europe, especial y in cash-strapped states in the east and southeast« (Johnston, 2016). The

CEE region has also been considered as a place to improve China’s image – buying political

goodwill is one of Beijing’s unstated purposes (Turcsányi, Matura, Fürst, 2014, pp. 127–141).

The 17+1 Initiative

143

weaker starting position. The CEE region has also been considered as a place to

improve China’s image (Turcsányi, Matura, Fürst, 2014, pp. 127–141).

The 17+1 scheme covers the fields of infrastructure147, transportation and logis-

tics, trade, investment, finance, science, education, and culture. As part of the ini-

tiative, China has defined three potential priority areas for economic cooperation:

infrastructure, high technologies, and green technologies. It »provides promising

opportunities for both China and Europe. CEECs had enthusiastical y embraced

this form of cooperation as a chance to diversify their EU-focused economic rela-

tions and strengthen the resilience of their economies to ‘next’ crises«.

»Strengthening Sino-CEECs co-operation and connectivity is also conducive to

the successful implementation of the OBOR, which aims to facilitate and promote

greater integration among the 60-plus countries along the Belt and Road. CEECs,

providing a strategic link between Asia and West Europe, are vital to the success

of the OBOR« (HKTDC, 2016, 2). This initiative somewhat resembles the move-

ment of non-aligned countries because countries with different ideologies and

political systems are to be involved. Its focus is on constructing infrastructure

projects aimed at linking China and Europe through many other Asian states.

It may also be regarded as another instrument for the expansion of China’s soft

power148 (see Ch. 2.2.).and at the same time an infrastructural vehicle for China

further economic expansion towards the West. In any case it is extremely ambi-

tious threat/opportunity dichotomy project. If realized as planned it could be real

game changer in the world economy.

However, it is now facing some difficulties in the implementation stage. Firstly,

pandemic has negative influence on it realization. Recent Boston University (BU)

research is showing that a sharp drop in Chinese overseas policy bank lending has

fuelled speculation that BRI may be fading away. The slowdown in BRI activity is

real: China’s outbound lending has been in decline since 2016. However, the num-

bers do not reflect the changes underway in China’s ambitious initiative (Mingey

et al., 2021). Secondly, concerns/fears about Chinese economic and political in-

fluence among countries among the silk road are growing. Some countries have

already faced inability to repay the huge credits provided by China, bringing them

in a political dependency situation. It has again demonstrated that economic de-

pendency which can be brought about by private FDI, as some say, is much less

a threat involving and hurting only the concerned company, that macro political

dependency as a result of country not in a position to repay huge debts. It gave

147 They are mainly carried out by Chinese companies, financed by Chinese loans.

148 See the report on Chinese soft power; McGiffert, 2009.

144

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

other partner countries or potential partners to think about the viability of such

very ambitious project at the time of crises which affects the global implementa-

tion of the initiative. Some are therefore accusing China of debt trap diplomacy, or

even neo-colonial aspirations while other see it as the main game in town. There

is opportunity/threat’ bifurcation in perceptions of the BRI, translating into two

contrasting theoretical explanations: either as a neo-Gramscian counter hegem-

ony based on South-South cooperation149 or an offensive mercantilist form of debt

trap diplomacy. In either case it represents a major challenge to the existing liberal

international order based on the hegemony of the West (see Garlick, 2020).

China’s main objective in boosting its relationship with CEE countries is probably

to enhance its relations with the EU. »Some Central and Eastern European coun-

tries reiterated their ability to serve as China’s gateway to markets in the EU, the

world’s largest economic bloc150« (Tianping, 2017). Extreme views would claim

the 17+1 scheme might »undermine the European integration process by turning

the CEE countries into a ‘Trojan horses’«151 and by sowing division on the con-

tinent. It is based on the fact that Central and Eastern European countries hold

diverging views on China’s presence and influence in Europe. Some have even

demanded that China adopt a »One Europe« policy just like the EU supports the

»One China« policy. The fear is that the ‘17+1’ is threatening the EU’s one-voice

strategy in its relationship with both China and the Western Balkan membership

‘candidate’ countries, with the impact on the EU’s internal political dynamics and

the process of new CEE members catching up in their economic development

149 China wish to position itself as the leader of the global South. This aim is not original; during the Cold War, China sought to portray itself as a champion of what was then called the Third

World (Mitter, 2021).

150 It is not anymore because the Regional Comprehensive Economic Partnership (RCEP) agree-

ment, signed in November 2020 by 10 Southeast Asian countries and South Korea, China,

Japan, Australia and New Zealand, became the largest become the largest preferential trade

agreement by economic output in the world, with the potential to increase trade and integra-

tion among the economies of East Asia The pact is seen as an extension of China’s influence

in the region.

151 The Economist even reports that Czech President Zeman wants his country to

be China’s unsinkable aircraft-carrier in Europe. Faced with such behaviour, it is only prudent for Europeans to be nervous (The Economist, 2018, Oct. 6, 11). Manifestation of such a role can also include the appointments of David Cameron, former British prime minister as

adviser to a Chinese investment fund, Jean-Pierre Raffarin, former prime minister of France

as the director of a Chinese manufacturing firm, and Philipp Rösler, Germany’s former vice-

chancellor becoming the boss of the charitable wing of a large Chinese conglomerate. China

Energy (CEFC) hired various influential Czechs: Jaroslav Tvrdik, a former defence minister,

who became vice-chairman of its European operations; Stefan Fule, previously a European

Commissioner, joined its supervisory board; Jakub Kulhanek, a one-time deputy minister at

the Foreign Ministry, joined as a consultant (The Economist 6.10. 2018, 18–19).

The 17+1 Initiative

145

with the ‘old’ EU member states. This culminated in early March 2019, just as

President Xi Jinping was embarking for his trip to Italy, in an official proclama-

tion issued by the European Commission that for the first-time labelled China a

»systemic rival« of the EU. The voting behaviour of some states already demon-

strates this influence152. Every vote, including that of Slovenia, or other CEECs in

Brussels, have been in support of the Chinese. However, »it would be a mistake to

attribute too much grand strategy to its actions«, as some do,153 warns the CEECs

Economist (Oct. 6.2018, 18). Stil , China’s EU policy may be regarded as an at-

tempt to enforce its doctrine of Confucianism aimed at maintaining balance and

harmony; keeping a low profile while quietly achieving something.

Coming from a big country, the Chinese think big and prefer to deal with larger

countries or groupings of smaller ones. Therefore, they regard the CEEC partners

in 17+1 on one hand as a homogeneous group, which it is not 154, and on the other

take different approaches to different countries (groups). Despite the appearance

of a unified strategy on CEE, the »17+1 cooperation initiative seems very much a

bottom-up approach and in fact consists of a patchwork of different kinds of bilat-

eral relationships and projects« (Vangeli, 2017). With some CEE countries, China

is developing more of strategic relationship (Hungary, Poland, Czech Republic,

Serbia) while others are more in the nature of pragmatic, project-based relation-

ships. Among countries of the Western Balkans, Serbia in particular has sought

to employ its increasing political and economic links with China as it pits itself

against the EU and great powers. There is obviously a big difference among the

Western Balkan countries when it comes to cooperation with China, with Serbia

evidently being China’s preferred partner.

Although 17+1 seems to be a multilateral scheme, it is basical y only a frame-

work for facilitating bilateral cooperation. »China much prefers to deal with states

one-on-one, where its size advantage is greater. It’s annual ‘17+1’ summits with

152 Greece stopped the EU from criticising China's human rights record at a UN forum. Hungary

and Greece prevented the EU from backing a court ruling against China's expansive territorial

claims in the South China Sea. In 2016, Hungary and Greece prevented the EU from joining

America and Australia in backing the Permanent Court of Arbitration’s ruling in favour of

the Philippines over China in a dispute over maritime borders in the South China Sea (The

Economist, 6.10.2018, 18).

153 Some Europeans see China as playing four-dimensional chess to divide and conquer the

Continent (The Economist, 6.10.2018, 18).

154 The approach to non-members is quite specific (Serbia for instance). Some participants in

the scheme are mainly seeking loans or Chinese investments while for Slovenia it is more

important to ensure some »projects, issues« appear on the priority lists of the provinces. The

latter facilitate the participation of Slovenian firms in such projects.

146

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

central and eastern European states, are real y 16 one-plus-one summits, where

each government deals with China on its own terms« (The Economist, 2018, Oct.

6., 18). The 17+1 scheme »resembles the Forum on China-Africa Cooperation

(FOCAC) created in 2000. Like FOCAC, and despite their multilateral-sounding

names, most business is actual y transacted bilateral y, and summits are largely

venues for strings of bilateral meetings between Chinese officials and leaders from

participating countries. But the CEECs have basical y discarded such an ‘African

approach’. CEECs expect a cash influx into the region155, which also reflects the

willingness of countries in the region to engage with China, perhaps also out of a

desire to increase their own leverage with, and within, the EU itself (see Godement

& Vasselier 2017, 64).

Most CEE countries also have no clear China strategy and, even if they do, they

do not coordinate with each other. Huge differences may be seen among CEECs.

They all have their own agendas. For one, there are EU members and those as-

piring to be. Apart from this, there are vast differences in the development level

and structure of their economies. As a result, the 17+1 economic cooperation is

mainly driven by China. China sets the agenda (see Szunomar et al., 2020, 56).

The approach to non-members is, for instance, quite specific (Serbia for example).

Some participants in the scheme are mainly looking for loans or Chinese invest-

ments while for Slovenia it is more important to ensure some ‘projects, issues’ end

up on the priority lists of the provinces, where the latter facilitate the participation

of Slovenian firms in such projects.

Policies on Huawei and G5 is another factor of differentiation among the 17+1

member countries and their relations with China. Slovenia and Slovakia signed

with the USA a Joint Declaration on 5th-generation Internet technology in

August 2020, reaffirming America’s commitment to keep untrusted vendors out

of critical infrastructure, as did Estonia, Latvia, Poland, and Romania156 already in

2019. Yet, it seems that Huawei will not be completely excluded from the Polish

market. Stil , Slovakia and the Czech Republic have not signed such a declara-

tion. The Czech government will most likely follow Germany’s approach. Prime

Minister Babis clearly stated: »We are a sovereign country and will decide for

ourselves what to do with our nuclear plant & Huawei. Hungarian MFA already

155 Since 2013, China has been repeating the same pledge for a USD 10 billion (now USD 11 bil-

lion) credit line and, in 2015, a USD 3 billion investment fund. Although the 16 CEE countries

would prefer to receive Chinese cash by way of investment, Chinese state companies over-

whelmingly prefer loans issued on their own terms, and in fact above EU market rates (see

Godement & Vasselier 2017, 66 and 70).

156 Huawei has already announced it will challenge the legality of the 5G bans in Poland, Romania

and might also do so in other countries.

The 17+1 Initiative

147

announced in November 2019 that Huawei would build its 5G wireless network.

Other countries in the region are, less committed. Serbia has been cooperating

with Huawei for a long time. Representatives of Serbia have stated they have no

concerns regarding Huawei, are satisfied with their cooperation and that it will

be further developed« (see Szunomar et al. 2020, 51 and Huawei: Banned and

Permitted in Which Countries? List and FAQ – Page 2 of 3 – ChannelE2E).

The ‘17+1’ has brought about a change in China’s relations with the EU, basical y

supporting the country’s core strategic interests accompanied by both great ex-

pectations and concerns. China might well utilise the scheme for political gains.

Some CEECs have reiterated their ability to serve as China’s gateway to markets

in the EU, the world’s largest economic bloc. »Not surprisingly EU has the luke-

warm and reserved stance of the EU towards the 17+1 China–CEE cooperation«

(Turcsányi, 2014), which seems to be only partly connected to OBOR (Raškovič,

2018, 1).

China’s influence in the CEE region is attracting increasing attention. Some even

go as far as to claim »there is no question that the 17+1 scheme is part of a broader

divide and rule Chinese policy (see Godement & Vasselier, 2017, 65). The number

of new ‘friends’ of the ‘17+1’ (like Portugal after 2018) is likely to increase in the

future, along with it also China’s influence. Others claim that »while European

concerns over China’s political objectives are justified157, there is little evidence

thus far of a strategic attempt on China’s part to ‘divide’ CEE off from the rest of

the EU (Hel ström 2016; Pepe, 2017) or to wage a cold war against USA (accord-

ing to M. Collins from the CIA).

On one side one finds those fearing Chinese acquisitions of firms with cutting edge

technologies in Europe’s most advanced economies, such as Germany and France.

In 2017, a full quarter of China’s outbound FDI was destined for Europe. From

German robot manufacturers, to British nuclear power plants, to Greek ports.

Chinese investment was wel comed by many as a scarce source of capital in the

region. More recently, as China has stepped up promotion of its BRI, with Europe

as its final destination, ever greater flows of investment in Eurasian connectiv-

ity are on offer. Others have centred on Chinese investments in transportation

157 There are two main concerns. The first is that China may intensify its efforts to use its influence-building in Central and Eastern Europe to frustrate aspects of the EU’s common China policy.

The second is that some 17+1 countries may exploit strong ties with China to buttress their

negotiating positions against Brussels, such dynamics could undermine Brussels’ effectiveness

in the often-fractious relations with its second-largest trading partner. The third concern is

that China’s push for guaranteed contracts for its companies will undermine the EU’s single

market rules on public procurement.

148

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

infrastructure in southern and eastern Europe. Such investment in Europe allows

it greater levels of influence in the region, not only economical y but also politi-

cal y. However, Ferchen et al. (2018, iv) posit »that concerns about China’s ability

to ‘divide and rule’ the EU as a result of the influence gained from greater in-

vestment are premature and potential y misleading and should not be exagger-

ated«. Instead, their study paints a more nuanced picture about the often-fuzzy

line between the commercial rationale behind individual projects and the mix

of Chinese and host-country political calculations about the political or strategic

benefits tied to Chinese investments and loans. In all of our cases, there is a distin-

guishable commercial basis or interest in the Chinese investment or loan package,

albeit a basis that is sometimes misjudged (by either China or the host coun-

try). They were namely »unable to conclude that Chinese investments and loans

for these infrastructure projects clearly led to a quid pro quo political influence,

let alone forms of strategic capture of European local or national governments«

(ibid., 2018, v). The Economist also thinks that »Europe thus needs to take a path

that avoids the extremes of naivety and hostility« (6. Oct. 2018, 11), which has

hitherto been a characteristic of public opinion. The general trend of a positive

mood in public opinion on China has shifted and become more hostile (Grant

& Barysch, 2008). Public opinion pol s reveal the low reputation held by China

in Europe, rejecting both the demonisation and partnership and the opinion shift

from »China taking over Europe« to »China saving Europe« (Shambaugh, 2013).

Discussions on the effects of cooperation and cal s for a more balanced trade and

reciprocity of market access emerged (among CEECs, the EU and observers),

more intensively after the 2018 Sofia Summit.

It can nevertheless be concluded that it is in China’s interest to maintain the

region’s stability in order to fulfil its own economic interests«. Beijing was also

quick to realise that successful implementation of projects in the 17+1 framework

would require the EU’s endorsement and compliance with the EU regulations.

For that reason, the 2014 Belgrade Guidelines pledged that all 11 EU members

would act »in accordance with EU legislation, regulations and policies,« whereas

the EU–China Connectivity Platform initiated in September 2015 and the Riga

Declaration issued at the last 17+1 summit held in November 2016 recognise

the need to finding synergy between CEE–China and EU–China relations (see

Istenič, 2017, 13). Yet the practice of countries leveraging their diplomacy to win

funding for projects, with the Chinese partner examining the projects put to it in

terms of the rules that come with EU membership – and in the near future with

being an accession candidate – have proved to be a much harder nut to crack.

Despite these concerns, in the 7 years of its existence the 17+1 cooperation plat-

form has become a valuable economic and political instrument in support of





The 17+1 Initiative

149

China’s interests in Europe. Political cooperation and institution-building with

CEECs have moved ahead at a remarkable pace. Before Covid 19 they have been

more intensive than with any other region. The regular frequency of the ‘17+1’

summits have been accompanied by several lower-level gatherings, sectoral co-

ordination mechanisms across CEE and local cooperation between CEECs and

Chinese cities and provinces. However, the general assessment after 5 years of its

existence is often summarised as »hot politics, but cold economics« (Turcsanyi,

2017). The 16 CEE post-communist states have become essential partners for fa-

cilitating the construction of China’s flagship project. Ever since the first 16+1

summit held in 2012, the CEECs have gained more weight in China’s policy on

Europe (Istenič, 2018, 1). The somewhat artificial group of 16 CEECs seems to be

the least prepared and the most confused as concerns the myriad initiatives and

mechanisms surrounding China’s activities in Europe (see Góralczyk, 2017).

6.2. ECONOMIC COOPERATION TRENDS

China’s economic engagement with the region has thus far lagged far behind its

promises158, although the trade of the 17+1 group of countries with China has in-

creased since 2002 very rapidly. In general, trade relations between the 17+1 and

China remain relatively low and unbalanced, leading to a rising trade deficit in

all 17 countries. The shares of such trade with China are still very small and trade

is quite lopsided. There is also a strong concentration on a few large countries

(Poland, Czech Republic). Their trade has risen much faster than trade with the

Western Balkan countries, apart from Serbia, which has dramatical y increased

its imports from China. The intensity of trade varies from country to country:

Greece and Romania are China’s most important trade partners from the Balkan

region, for both imports and exports, followed by Slovenia, Serbia and Bulgaria as

additional important import partners. Bulgaria, Slovenia and Croatia are the most

important exporters. China is one of the three main trading partners of the three

158 There is a sense of disappointment within CEE countries about future engagement with China

under the mechanism. CEE countries are increasingly dissatisfied with the outcome of their

economic engagement with China and also have qualms about the 17+1 initiative in general.

What was once Beijing’s pivot to Europe is being met with scepticism about the future of the

framework because of its slow results. China’s manoeuvres in the region are now increasingly

being viewed as merely symbolic, with the pandemic only adding to its woes. The ninth sum-

mit between China and the Central and Eastern European countries, scheduled to be held in

the first half of 2020 in Beijing, was postponed (it was held in February 2021; add. by SM) indefinitely in the wake of the Covid 19 pandemic. As host, China has hoped to upgrade

the economic cooperation and shape its relations with countries from the region (see Gupta,

2020).

150

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Balkan countries of Albania, Montenegro and Serbia. All 10 Balkan countries run

a trade deficit with China, with Romania leading the group, with an enormous

USD 4.425 billion in trade deficit, followed by Greece (USD 3.177 billion) and

Serbia (USD 2.075 billion). The increase in Chinese imports since 2012 is the

highest in the case of Serbia and Montenegro (94% and 80%, respectively), fol-

lowed by Bosnia and Herzegovina, Albania, Bulgaria, and Serbia (all around 50%

to 60%) and Slovenia, North Macedonia, and Greece (around 40%). In Croatia,

Chinese imports even dropped by 36% during the period, potential y due to the

decline in purchases of Chinese textile-related products, mainly footwear and ap-

parel (see Szunomar, 2020, 38).

The structure of CEE exports is characterised by higher value-added products in

the case of the Visegrad region, Lithuania and Estonia, while the Chinese export

baskets for most Balkan countries – except for Slovenia, Croatia and Romania –

comprise low value-added products and/or a few raw materials (Szunomar, 2020,

38 and 56).

The USA–China trade war might disrupt trade in many sectors. It might lead to

cooperation being upgraded to a higher level as part of America’s reorientation

of its trade and other economic cooperation to other countries, which can step

into fill the void left by China. »Tariffs tend to shift trade more than they reduce

it and, as importers in China and the US look for alternative suppliers, new

opportunities will open up for exporters in third-party markets« (EIU, 2018,

2). On the other hand, exporter of parts to China will be hurt by the cuts made

to China’s exports to the USA. Although this region will neither be the main

beneficiary nor the loser of this reorientation, it might still gain some of the

crumbs that fall off the table as China leaves and other countries can step in. The Economist Intelligence Unit (EIU) calculated the biggest beneficiaries will be

the region of Malesia and Vietnam159, less so India, Indonesia and Thailand (in-

formation and communications technology field). Thailand will join Malesia as

the main beneficiary in the automotive industry along with India, Malaysia, the

Philippines and Vietnam. On the other hand, Bangladesh, Vietnam and India

appear to be the main beneficiaries of the readymade garment industry, together

with Sri Lanka and Pakistan (see EIU, 2018). Apart from readymade garments,

CEECs have chances to enter the automotive and less so the IT and communi-

cations sector. Stil , there is another side. Negative impacts will mainly be felt

in Asia, but might also hit the CEE economies that particularly export to China

parts for the automotive industry, although mainly indirectly via Germany. The

159 Relocation of some industries from China to poorer Asian countries is not total y new, having started already some years ago parallel to the rise of wages in China.

The 17+1 Initiative

151

hardest hit will however be exporters in Japan, S. Korea, Singapore and Taiwan

(automotive sector), with the Philippines joining the group in the IT and com-

munications sector (see EIU, 2018). It is still not possible to say what the net

effect will be, but it is certain that much depends on proactive policies of the

countries concerned.

Only a small share of the Chinese FDI projects in Europe have landed in CEE.

Despite the 17+1 initiative, Eastern European member states have not attracted

any substantial FDI from China. The region is still failing to draw any significant

M&A activity from Chinese investors, and accounts for only 1.5% of all Chinese

investment in the EU (see Figures 24, 25). Slovenia and Cyprus have attracted the

least Chinese FDI.

China’s investments in the region are primarily guided by its interest within BRI

to better connect to the EU market with new intermodal transport channels as

time- and cost-saving alternatives to the existing longer ones. Chinese firms have

tended to invest more along the »Belt and Road« route after the BRI was launched

(Kang et al., 2018a; Jaklic & Svetlicic, 2019, 88). This means it is not surprising that

cooperation in the investment field has not been overly promising.

Apart from being modest in size, Chinese FDI is concentrated in a few countries.

Like with trade relations, CEE countries host Chinese FDI to varying degrees: the

four Visegrad countries receive more than 75% of total Chinese OFDI to the 17

CEECs, while the other 13 countries – often despite slight increases – have not

received significant amounts of Chinese FDI flows thus far (Szunomar et al. 2020,

42). The favourite destinations for FDI in CEECs in 2016 were Poland, the Czech

Republic and Romania, in contrast to Hungary, Slovakia and Lithuania that saw

negative flows in this period, but large FDI inflows before the economic crisis.

»The main beneficiaries of Chinese investment are Poland, the Czech Republic

and Hungary. There is a fairly valid reason to believe that a crisis in the EU can po-

tential y provoke ‘competition among the ‘16’ for China’s attention« (Burjanadze,

2017). China was not among the top 5 foreign investors in any of these 16 coun-

tries. Recently, Romania has attracted much more by way of investment, while

Slovenia has been a very marginal partner.

Infrastructure projects – financed with Chinese loans – are being negotiated al

over the region but non-EU countries among the 17+1 scheme seem to be more

open to using this opportunity while EU member countries are more reserved in

this regard. Although financial cooperation is gaining momentum, it is currently

limited to EU members. Slovenia is also here lagging well behind here (see the

list of projects under implementation or negotiation, Table 1 in Szunomar et al.

2020, 49).





152

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Figure 41: Chinese FDI stock in the Balkans (in USD million)

Source: Szunomar et al., 2020, 44.

»Despite last year’s announcement of a EUR 10 billion investment fund for infrastructure projects in Central and Eastern Europe, most Chinese investment in

Europe have chiefly been directed to Europe’s four largest countries towards the

West: the United Kingdom, Germany, Italy, and France« (Poggetti 2017).

To conclude: it seems the new geopolitical developments160 and altered EU policy

on China (strategic, rival, strategic autonomy) will also affect the direction of the

China–CEEC 17+1 scheme. It will certainly be repositioned and adjusted in the

new context of China–USA–EU trilateral relations.

6.3. SLOVENIA IN THE 17+1 SCHEME

Slovenia is not one of the bigger partners in the scheme. Oehler-Şincai (2017, 13)

differentiate four groups with respect to the position of a country in the EU and

its attitude to cooperation intensity within the ‘17+1’ format:

160 The changes are expected with the new US Administration related to trade war and the

Huawei 5G policy and general US–China rivalry for world primacy.

The 17+1 Initiative

153

• Active participants (‘champions’, ‘leaders’) include the Czech Republic, Hun-

gary, Poland and Serbia. All are Eurosceptic and all are China’s strategic

partners.

• Ambitious partners include Bulgaria, Latvia, North Macedonia, Romania and

Slovenia. Most are Euro-optimists or Euro-moderates (apart from Bulgaria,

which is Eurosceptic)

• Followers include Croatia, Estonia, Lithuania and Slovakia. These countries

are known as Euro-optimists or Euro-moderates.

• Laggards refer to Albania, Bosnia-Herzegovina and Montenegro, known as

Euro-optimists/Euro-moderates.

A more in depth look at results of the 17+1 scheme does not provide strong sup-

port for Oehler-Şincai’s claim that Slovenia is an ambitious partner. In the com-

prehensive division of labour developed within the group, with each country con-

centrating on a specific field, Slovenia does not have a prominent role and results

on the ground have so far not met the expectations in general.

Table 13: 16+1 institutionalisation progress

Established institutions

Year

Country

Business Council

2014 Poland

Secretariat for Investment Promotion

2014 Poland

New Silk Road Institute (NSRIP)

2015 Czech Republic

Centre for Dialogue and Cooperation on Energy Projects

2016 Romania

Regional Centre of the China National Tourism Administration

2016 Hungary

Coordination Mechanism on Forestry Cooperation

2016 Slovenia

Association for the Promotion of Agricultural Cooperation

2017 Bulgaria

China–CEE Institute

2017 Hungary

CEE Federation of Chinese Medicine Societies

2017 Hungary

Virtual “16+1 Cooperation” Technology Transfer Centre

2017 Slovakia

Secretariat on Logistics Cooperation and Virtual Information

2017 Latvia

Platform

Secretariat for Maritime Issues

2017 Poland

Association on Transport and Infrastructure Cooperation

TBA

Serbia

Cultural Cooperation Coordination Centre

TBA

North Macedonia

Inter-Bank Association

TBA

Hungary

Small and Medium-sized Enterprises (SMEs) Association

TBA

Croatia

Veterinary Science Cooperation Centre

TBA

BiH

Environmental Protection Association

TBA

Montenegro

Source: updated Istenič, 2017.

154

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Slovenia has selected the field of forestry that is not such a promising or important

field in the short run161 compared to, say, logistics which is definitely strategical y

important for China as it considers European markets, investments or tourism. At

the 8th summit in Dubrovnik in 2019, Slovenia added to forestry cooperation in

the field of cultural and creative industries; more precisely, to host the 5th China–

CEEC Cultural and Creative Industries Forum in 2020. During the 2021 meeting

of the group, Slovenia assumed coordination mechanism for winter sports.

161 But in the long term it is important in view of the pressing ecological problems China is facing and the role of forests in improving the environment. Slovenian experiences and the expertise

of its universities and institutes might prove very useful in this regard.





How to promote future bilateral cooperation?

155

7. HOW TO PROMOTE FUTURE BILATERAL COOPERATION?

The first general starting point for enhancing bilateral cooperation with China

is to realise that China has substantial y changed and continues to do so every

day. Companies and governments must acknowledge that China is no longer

our production site as was believed at the beginning of China’s opening up but

is developing into an innovation and technology, knowledge developing site. The

situation is now total y different: China is producing and innovating, and every

day innovating more and more. China is not any more a producer of traditional,

standardised, more labour-intensive products162, but becoming a leader in many

technology- and science-intensive products, gradual y transforming itself from an

imitator to a trendsetter. As M. Rol , perhaps over-optimistical y in the short term

at least, claims: »The West will gradual y move into the role as adjusting partner

instead of trendsetter. Trends will continue to emerge from Asia. Asia will build

more global iconic brands and in such a way export its Way of Life« (Rol , 2019)

and in thereby enhance its soft power.

Therefore, bilateral cooperation must be restructured to take this into account.

The second mistake one can make while approaching China is to treat it as a to-

tal y uniform country. »China is a large and heterogeneous market which makes

talking about Chinese consumers a task which is fraught with dangers and

risks of overgeneralizations. For every consumer trend you see, there is an op-

posite, though not necessarily and equal, trend163/... /« Ashok (2019) adds that,

»Successful y selling to the Chinese means getting to know their consumers and

entrepreneurs. The enormous differences exist between the city and the vil age,

between the rich and the poor, and the middle class is segmented by consumers.

Stereotyping Chinese as poor is deadly wrong. There is a lot of very rich people«.

162 They increasingly outsource such production to neighbouring Asian countries.

163 For instance: Chinese consumers are becoming more health-conscious but at the same time

Western junk food restaurants have been opening at a phenomenal rate. Similarly, we can

say that Chinese consumers are becoming Westernized, as seen in the adoption of Western

food or customs (Chinese brides have white gowns, they have started to celebrate Christmas,

although they are mostly atheists, and Valentine’s Day). On the other hand, there is a

resurgence of interest in traditional Chinese culture (see Ashok, 2019).





156

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Just a decade ago, most urban Chinese had enough money to cover basic needs like

food, clothes, and housing (92 percent had annual household disposable incomes of

140,000 renminbi or less). Today, half are living in relatively well-to-do households

(annual disposable incomes of 140,000 renminbi to 300,000 renminbi) where they

have ample funds for perks like regular meals out, beauty products, flat-screen TVs,

and holiday travel. Most rural Chinese, on the other hand, remain relatively poorer.

The urban consumers are now the main driver of the Chinese economy, with their

spending accounting for more than 60% of GDP growth. Across the globe, Chinese

consumer spending represented 31% of household consumption growth from 2010

to 2017. Now, 10 years into this expansion, consumer behavior is shifting, and we

see a bifurcation among Chinese consumers. On one hand, a segment of consumers

in lower-tier cities continues spending money freely without any worry about cost or

saving for the future. Other consumers, though, mostly in large, expensive cities such

as Beijing, Guangzhou, and Shanghai are responding to the dip in China’s economic

growth and the increased cost of urban living by adjusting their attitudes and, in

some cases, their spending (Ho et al., 2019, 4–5).

The above-mentioned McKinsey report based on a survey conducted between

May and July 2019 of 5,400 respondents from 44 cities, representing approxi-

mately 90% of China’s GDP and half of its population, revealed the following 5

major consumer trends164:

Source: Ho et al., 2020, 5.

164 For details see: China consumer report 2020: The many faces of the Chinese consumer (mck-

insey.com)

How to promote future bilateral cooperation?

157

The most important conclusion is that young free spenders account for 60% of

total spending growth, yet constitute just 25% of the population (2018 over 2017).

Second, major consumption is coming from large cities and the consumers there

are much more cautious about what they buy; 60% of consumers in large cities

said they always check the ingredient labels for packaged food for instance. Third,

consumers are changing their lifestyle; 72% of survey respondents told us they

were actively seeking a healthier lifestyle.

To conclude: Chinese consumers are responding in distinct ways to the country’s cur-

rent economic uncertainty and slowing growth. Some continue to spend freely and

seek out more expensive options, while others have grown more discerning and are

tightening their belts. But for the large majority of consumers in our survey, there is a

consistent story. These consumers remain confident and will col ectively represent an

economic powerhouse for the foreseeable future (Ho et al., 2019, 19).

Much earlier research (see McEwen et al., 2005) already indicated the beginnings

of such trends, demonstrating that:

• that the consumer behaviour patterns of generations Y (18–24 years) and X

(25–29 and 30–39) in China should not be thrown into the same basket as for

Germany, the USA or Brazil. China’s generation Y is becoming more deman-

ding, highly information-educated, and open to Western ideas and Western

culture. The past is hence a poor basis for predicting the future behaviour of

consumers in China.

• Ten-year Gal up research reveals that Made in China does not mean more than

it did in the past (as drop in preferences for local y made from 78 to 67% and

even faster among young people).

• Chinese people are increasingly thinking about the quality of life, thinking

about air conditioning, about satisfaction, and not just about how hard to work

and become rich.

• The market for more demanding consumer durables is expanding quickly.

Over 80% of Chinese people already have a TV at home, almost 60% a mobile

phone, 50% a stereo system, over 30% a refrigerator and a microwave, 25% a

computer, a video and a digital camera.

These structural changes are a result of the fast growth seen in China’s GDP per

capita between 2000 and 2018. It increased 9-fold to reach, according to the World

Bank, USD 9,977 in current terms. Growth in PPP was slower, rising 4-fold to

reach USD 15,309 in current international terms. But, of course, the benefits of

such rapid growth are increasingly distributed unevenly among the population.

Huge regional disparities are thus emerging and this explains why managers look-

ing to cooperate with China must also consider this while looking for the best

location for investments or business partners general y.



158

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

China is obviously catching up quickly but the gap between Slovenia and China in

PPP terms is still vast, in spite of substantial convergence, especial y after the GR

in Slovenia that led to dropping growth rates.

Table 14: China and Slovenia GDP per capita PPP – forecast 2020–2022

Country

2020

2021

2022

China

16,450

17,700

18,210

Slovenia

35,000

37,500

38,800

Source: Trading Economics: https://tradingeconomics.com/forecast/gdp-per-capita-ppp.

Figure 42: Projections of Slovenia and China GDP per capita growth, 2000–2022 (PPP,

EUR )

Slovenia

China

Source: SPIRIT izvozno okno: https://www.izvoznookno.si/drzave/kitajska/pregled-gospodarskih-

gibanj/.

The gap between China and Slovenia’s GDP per capita in current US dol ars

has narrowed substantial y; from over 10-fold in 2000 to 2.6-fold in 2018 (only

2.5-fold in current US dol ars). The gap has not narrowed as fast as the scenario

(Svetličič and Sicherl, 2006, 706) predicted that China can, if the growth rate gap

between China and Slovenia continues to be 4% to 5%, catch up to Slovenian

GDP pc PPP by 2034 (4% difference in growth rates) or by 2028 at a difference

of 5% in growth rates During the crisis that Slovenia faced between 2008 and

2015, the growth rate gap well exceeded 4%–5% but is now, parallel to the slowing

down of China’s growth rates, narrowing, but again increasing during the Covid

19 pandemic. Catching up is occurring, but now at a slower pace. Nevertheless,

How to promote future bilateral cooperation?

159

it is important to consider in bilateral relations that the consumer pattern of the

Chinese is moving closer to that of the Slovenian consumer and to adjust the

structure of foreign trade accordingly.

Second, it is essential to enhance the ability to respond to global tendencies and

the role of China within them, as well as internal structural changes in China’s

economy. Delaying here might prove very costly. Alternatively, as established

already many years ago: »Flexibility, rapid response to the tectonic changes in

the world should become a fundamental challenge for the Slovenia development

strategy. It is time to see where the world is sailing, and quickly, ideal y, in ad-

vance, to respond to such tendencies. Reducing reaction time is the foundation of

entrepreneurial ‘time-based competitiveness’, which can also be used on the state

level. This is an old, yet insufficiently anchored finding (see Svetličič 1993, 34).

Third, many barriers and problems must be overcome in order to enrich such

cooperation:

• The first is to geographical y diversify economic relations, bringing them in

line with the tectonic changes around the world in which China is becoming

the number 1 player. Moreover, in a much longer perspective, Africa should

also be included among the very long-term priorities. Some even have optimi-

stical y predicted that the 21st century will be the century of Africa. Covid has

acted to insert sand into such wheels. Nevertheless, it is safe to say that Africa

is underestimated, but holds huge potential. Africa’s land area exceeds that of

China, Europe and the USA combined (see Appendix 3).165 China is one coun-

try which has real y taken such a long-term perspective very seriously, streng-

thening its economic presence in Africa already for a long time. The country

has invested in the future, obviously wanting to be the first if the market starts

booming.

• Second, to develop a real y comprehensive long-term strategy to locate the re-

lations with China in focus within the framework of the new world’s geopolitics

165 For more elaborated perspectives, also see Leke et al. (2018a, 4 and 8) who present a strategic guide to business in Africa based on interviews with 40 of the continent’s most prominent

executives and development leaders, case studies of thriving companies in sectors ranging

from banking to technology to manufacturing, and proprietary McKinsey research. One of

the respondents, the Ivorian-born CEO of Credit Suisse Thiam, posits that »You’ve got (in

Africa, SM’ remark) the demographic boom combined with GDP growth rates of 5 6, 7, or

8 percent. Companies that get in early and shape the right strategy can sustain double-digit

profit growth over decades«, he adds, »There is an element of breaking ground, but the long-

term rewards will be very high. /…. Africa is home to a consumer class whose spending out-

strips India’s, and it will soon have double the number of smartphone connections than North

America«, However, the situation is changing after Covid 19.

160

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

in the making. It seems there is no strategic thinking in Slovenia regarding

how relations with China are to be developed in the long run. Such a strat-

egy should not only concentrate on China as such, but include priorities for

cooperation by areas and provinces. Not the least with other Asian, densely-

populated countries that are also developing very rapidly.

• Wherever possible or feasible, it is better to establish direct cooperation with

Chinese partners rather than to work as suppliers to western multinational

companies, or at least to attempt to work on both legs: suppliers and directly.

• In such a general framework, it is also time to rethink suppliers’ networks. The

Covid crisis and ‘slowbalisation’, to borrow The Economist’s term to describe

the globalisation backlash, are bringing about a fundamental restructuring of

GVCs. Shoring in geographical y-close locations in order to reduce the risks of

doing business over a long distance will become more important. Geographi-

cal y diversified166 and regionalised, localised and more col aborative supply

chains with critical suppliers will reduce exposure to location-specific shocks

and make GVCs more reliable, less fragile and more self-sufficient by moving

them closer to consumers and innovators (partial re-industrialisation of de-

veloped countries). Slovenian suppliers to EU companies dealing with China

may become more attractive but Slovenian companies sourcing in China may

encounter the challenge of reducing and diversifying such cooperation.

Specifical y, a European Parliament study (2020b, 30) listed the following pri-

orities in GVCs’ adaptations by (decreasing) order of relevance:

- Increasing crisis modelling and contingency planning

- Diversifying location

- Relocating to the primary country of operation

- Avoiding protectionism, institutions and nationalism

- Relocating for political stability

- Relocating for shared values

- Relocating to the continent of the primary country of operation

- Relocating for economic development

- Relocating to places with an excellent Covid-19 response

- Not changing anything

166 Excessive Euro centricity is bad as growth poles move to Asia and, perhaps in the long run, to Africa. Among UBS bank’s 1,000-plus respondents, 76% of firms from America, 85% from

north Asia (e.g. Japan and South Korea) and even 60% from China say they have already

moved or plan to move some production away from China. Keith Parker of UBS estimates

that companies might shift between 20% and 30% of their Chinese manufacturing capacity.

That will not happen overnight, but it will chip away at China’s dominance in manufacturing

(The Economist, 2020, June 27, 59).

How to promote future bilateral cooperation?

161

• A constituent part of such a strategy might also be the establishment of a con-

sortium of Slovenian firms active or interested in cooperating with China over

the long term. A coordinating approach like this could facilitate future coope-

ration, particularly of SMEs that lack their own competencies and capabilities.

• To strengthen political relations; China is a specific country in which good

political relations on all levels (macro with the state, mezzo with the provinces,

micro with agents first167 and final y firms) are a sine qua non for successful

long-term economic cooperation; all with a view to establishing the necessary

QUANSHI (for more, see next Ch.).

• The precondition for better political and economic cooperation is also to

break, or at least reduce, the attitudinal barriers and overcome the persisting

economic and cultural stereotypes about China.

• Apart from Croatia, Slovenia is the only CEE country with access to the Adri-

atic Sea and is therefore as a Northern Adriatic gateway to the EU perhaps the

most important comparative advantage to materialise. This also gives power to

our negotiators, particularly since the Chinese deeply respect not only those

with whom they share opinions but also those with different opinions but

which possess, and are able to materialise, such powers.

• Slovenia should attempt to present itself as being different to other CEECs

by more strongly offering its unique comparative and competitive advantages

(including in science and technology) also based on its geographical position,

which also makes it attractive to Chinese tourists.

• The framework for long-term-oriented cooperation should consider the Chi-

nese programme »Made in China 2025« and the new FYD plan 2021–2026

aimed at moving from a ‘low-cost factory’ to a high value-added economy168.

This implies upgrading the cooperation in the ever more technology-intensive

sectors in which China plans to dominate.169

• It is of the utmost importance to also bilateral y establish reciprocity with

China, and even more so on the EU level; what we offer here should be matched

in the same way in China as wel . Greater assertiveness is needed on both the

Slovenian and EU sides.

• Being a small economy, Slovenia cannot imitate the ways big countries en-

hance their cooperation with China but must find its own specific ways to

167 Based on the guanxi principle.

168 See Chapter 2.5.

169 Already now, China is the world's largest user of industrial robots. In 2016, sales of industrial robots in China reached 87,000 units, accounting for around 30% of the global market. To

put this number in perspective, robot sales in all of Europe and the Americas in 2016 reached

97,300 units (according to data from the International Federation of Robotics). Between 2005

and 2016, the operational stock of industrial robots in China increased at an annual average

rate of 38% (Hong Cheng, Ruixue Jia, Dandan Li and Hongbin Li, 2019).

162

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

build on its strengths, the competitive advantages of its firms and comparative

advantages of the country, either alone or in tripartite cooperation with larger

countries/companies.

• By enhancing the productivity and competitiveness of Slovenian firms by co-

operating with Chinese ones, the Slovenian economy could also strengthen its

competitiveness in the global market general y.

• Outward and inward investments are closely linked. Firms able to materialise

such two-way cooperation hold better prospects of prospering in the long run.

• Utilise even more the free services provided by the IPR and SME help desk.

They can also be very instrumental in the selection of good, reliable Chinese

partners, namely one of the major preconditions for success in the Chinese

market. Barriers related to the smallness of the economy and small firms can

be reduced through more intense use of several EU schemes for helping SMEs

to penetrate the large Chinese market.

• Specific knowledge and skil s are essential for success in the Chinese market,

knowledge that goes beyond mainly functional education and is more in the

direction of the holistic training across disciplines needed for international

business. Therefore, further efforts to improve and modernise the education

and training of human resources are called for, specifical y also in the field of

soft skil s like the cross-cultural communications and negotiations that are so

important while dealing with the Chinese. In this way, cultural differences,

considered by many as among the big reasons for failed cooperation, could be

overcome.





Overcoming Cross-Cultural Differences so as to Enhance Bilateral Cooperation

163

8. OVERCOMING CROSS-CULTURAL DIFFERENCES SO AS TO

ENHANCE BILATERAL COOPERATION170

A considerable share of Slovenian managers has indicated that overcoming cross-

cultural traps is a major challenge in today’s international business relations.

Mistakes or misunderstandings they have made or faced in this area have never-

theless been singled out as big problems they faced on their internationalisation

path. Such experiences are confirmed by Cohen (1997) and Faure (1998), positing

that misunderstandings caused by variations in negotiating behaviours stem from

cultural differences. Pfajfar et al. (2020) also noted that in the Slovenia–China

negotiation context cultural differences and non-understanding of them are cer-

tainly the most common reasons that misunderstandings with the Chinese occur.

One reason for such a prominent position of cross-cultural mistakes is that such

mistakes are not easily corrected, if possible at al . They are remembered for a long

time; huge ones may persist even in the generation. You can repair your product

or service, but if you insult your foreign partner due to not knowing about their

cultural background this can mean the end of the cooperation or at least a lower

price or the loss of some other element of a potential business transaction. This

knowledge is important in international businesses in general, but particularly

when one is faced with partners from other, less well-known, distant continents

that are cultural y and historical y quite different from us. This is especial y the

case if we cling too much to ethnocentrical y-or Eurocentrical y-based stereo-

types about other cultures, which is a common mistake made by business people.

Not mastering cross-cultural differences often leads to not only misunderstand-

ings but even to conflicts and failed business deals. Another source of conflict

is that foreign behaviour is interpreted through the prism of our cultures (some

sort of cultural imperialism or ethnocentric or Europocentric view of the world).

It is hence vital to understand foreign, in this case, Chinese culture, but also our

own or, in other words, how they see us. Intercultural negotiations can otherwise

produce poorer results than ones within a single culture. Stil , one must be aware

170 This chapter is not designed as a complete guide or textbook on negotiations but instead offers a short list containing some basic issues which are important for making bilateral cooperation

between the two countries more efficient.





164

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

that huge differences also exist between regions, cities and vil ages, big and small

cities, in any foreign culture. This particularly applies to China.

China is certainly such a distant country that is less well-known by Slovenians,

although some similarities can be found. Analysing and understanding these dif-

ferences and how to prepare for and overcome them in business transactions is

the goal of this chapter.

8.1. THE GENERAL IMPORTANCE OF CULTURAL DIFFERENCES

FOR INTERNATIONAL NEGOTIATIONS

The statement by Geert Hofstede (1994) that »the business of international busi-

ness is culture« perhaps best il ustrates the importance of understanding culture

in international business. Differences among countries and cultures are so great

that business people can real y make a big and irreparable mistake if they do not

understand them. They include differences in national heritage, education, think-

ing patterns, religion, communication and behaviour, attitudes to time or risks,

individual vs. collective behaviour, patterns of communication, and emphasis on

personal relations. Some basic principles of intercultural negotiations may be di-

vided into nine groups:

1. Prepare wel . International, intercultural negotiations require additional, in-

-depth preparations beyond the subject, but even more about the culture

and about the concrete negotiators on the other side of the table. Before

the negotiations, examine the culture and history of the partner, not just

the subject matter. It is best to learn their language as wel . Get acquainted

with the history of bilateral relations. Managers must know how the other

side (OS) is influenced by its history, economic, social, political and cultural

circumstances.

2. Find out how your partner sees and perceives you. Good self-knowledge is the

basis for successful negotiations. If you are seen as a Martian by them, your

ideas will also be Martian. A common mistake of negotiators is to think that

the OS sees them as they see themselves, as if their self-image is also an image

in the eyes of the OS.

3. Know the stereotypes about other cultures, but avoid relying on them too

much. They may be terribly misleading. Business people must be aware of the

limits of stereotypes because generic information about other cultures is often

based on stereotypes. These indicate typical behaviour in certain cultures, of

individuals from such cultures. However, there can be vast differences within

cultures, meaning stereotypes should not be applied to every region of a given

country and even less so to every individual.

Overcoming Cross-Cultural Differences so as to Enhance Bilateral Cooperation

165

4. Try to establish a pleasant personal relationship with your partner before star-

ting the formal negotiations and express respect and interest in foreign cultu-

res. If you do this, the mistakes one will almost certainly make in negotiations

with unknown negotiators from other cultures will be forgiven. If one does not

show respect and interest, mistakes will be paid for dearly.

5. Adapt your strategy to your partner’s cultural habits. International negotiations

are much less predictable than domestic ones. Therefore, it is necessary to con-

stantly adapt, to be able to face ever new situations and problems. If you are

selling (the buyer is king), you must adjust to the OS’ culture (say 60/40 or even

70/30 in their favour), and vice versa if you are buying. In this case, relations be-

tween the two cultures could be more in your favour because now you are king.

6. Don’t think your partner will always understand your (verbal or non-verbal)

message the way you do. Pay attention to indirect and nonverbal communica-

tion. Traditional societies attach great weight to them. Be aware that the OS

might attach a lot of weight to status and face saving/giving.

7. Treat partners as equals. Do not criticise publicly; follow face saving priciple.

Do not surprise them with advance arrangements. Appearance can be at least

as important as the content. The agreement must be »presentable«. Symbolic

benefits can outweigh losses in content.

8. Be patient. In some cultures, speed is seen as the »devil’s thing« (Arabs…) or

creates mistrust (China…). Rushing provokes unnecessary concessions. Allow

time for the partner to make decisions as wel . Long bureaucratic procedures

(Germany…) are required in some cultures more than in others.

9. The attitude to how to finalise the agreement reached at the end of the nego-

tiations varies considerably among cultures. For some, relationships are more

important than a written contract. Some cultures prefer long and very detailed

contracts, for others agreeing on the basic principles is enough. Even an oral

agreement can do in certain cases. Therefore, we must know what is the OS’

culture in this regard. Four types of culture can be identified in this respect:

- Detailed contract cultures. For them (mostly Western cultures), the contract

is the most important result of the negotiations. This means it must be very

precise and specify even the smallest of details. However, in this category

even the Hong Kong Chinese can be much more flexible than the Germans,

for instance.

- Detailed contracts are seen more as a formality, yet desirable. Such is the

attitudes of cultures that value relationships more (most Latin Americans,

Koreans, and Singaporeans, with a high share of Chinese as well).

- Similar weight is attributed to precise contracts and relationships. Here we

find India, Russia, South Africa and Ukraine.

- The Chinese are in the fourth group for which contracts are more of a for-

mality. They are concluded if legal y necessary and can contain basic-gu-

iding principles for the cooperation. Relationships are more important.





166

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Apart from China, there are cultures like Indonesia, Malaysia, Mexico, Saudi

Arabia, Taiwan and Thailand (for more, see Katz, 2006, 57). Stil , mangers

must also know that signing of the contract might not be the end of the ne-

gotiations. What matters is implementation.

8.2. DEALING WITH THE CHINESE

After identifying some general principles171 and cultural differences of cross-cul-

tural negotiations, we now indicate how to negotiate with the Chinese specifical y

given that they are known to be masters of negotiation. Some say they are born

to do business. Following the rising importance of China in the global economy,

books and articles on how to do business with the Chinese have been mushroom-

ing, especial y in the last decade. Therefore, we first look at the general literature

on negotiations with the Chinese, with their culture. In the second part, we look

into its application from bottom-up into specific Slovenian experiences of deal-

ing with the Chinese. In such a way, we can avoid the frequent over-simplistic

or stereotyped approach of Westerners, particularly American businessmen, who

have traditional y seen Chinese negotiators as inefficient, indirect or even dis-

honest. But Chinese culture is so deeply rooted in their rich history and has seen

profound changes after opening up and even assimilating some western cultural

habits that all of such changes must be taken into account.

As a general rule, Chinese businessmen are usual y ambivalent about foreigners, a

combination of the Maoist bureaucrat, Confucian gentlemen and Sun Tzu strate-

gist. Confucian ethics is collectivistic, placing values and interests of the collec-

tive first. Their most important values are: loyalty, harmony, collectivism, consen-

sus, family, humility, modesty, respect for age and hierarchy, trust, sense of duty,

friendships and strong wisdom, sympathy, tolerance, patience, sincerity, tradition,

tenacity, patriotism and conscience, avoidance of conflict, importance of inter-

personal relationships, moral cultivation, and the importance of face saving/giv-

ing172. These are some, say, common characteristics yet considerable differences

171 They are indicated only as a guide for negotiations and cannot be generalised.

172 Therefore, the Chinese hardly say No. They avoid it at all costs because saying No is considered as losing face. Politeness is deeply imbedded in their collectivist culture. Face saving is very prominent in their culture. They would rather change the topic in order to avoid saying

NO. But, in fact, it means disagreeing although there may be differences between old and

young negotiators, those educated abroad or not, with or without international experiences.

International y experienced managers may say No like the Westerns do. The second nonverbal

sign which can be interpreted as No is when they smile at each other.

Overcoming Cross-Cultural Differences so as to Enhance Bilateral Cooperation

167

exist between regions, vil ages and towns, between big and small cities. It is a com-

bination of guanxi (personal contacts, trading favours, networks) and imported

corruption. The Chinese self-perception is based on such a general Confucianist

culture. Contrary to this self-perception, they may have seen foreigners in the

past (a strong Western stereotype and old exaggeration) as being inferior, corrupt,

decadent, disloyal, volatile, barbaric, second-class people173, even devils. This has

changed. Fang (2006) emphasised that the Chinese perceive a foreign party as sin-

cere; they reciprocate by being sincere as well and establish a trusting relationship

to substantial y facilitate business among the partners.

Another characteristic of Chinese business people is their Yin-Yang dual atti-

tudes. Their behaviour is different when faced with younger or older negotiators.

The negotiation strategies of the Chinese changing over time and depend on the

context, situation, issues, time and negotiators on both sides of the table. They

may at once appear positive and negative. Such Yin-Yang behaviour is known in

Western business literature as coopetition, namely, when two partners both com-

pete and cooperate with each other at the same time.

Preparing a long-term strategy to build one’s relationship with Chinese partners

is thus essential because the Chinese are long-term-orientated, stressing personal

relations. In so doing, it is crucial to take account of the location within China, the

industry, the partner’s personal characteristics, hierarchy, age, and seniority. On

this basis, three strategies can be conceptualised:

• win-win (Confucianism);

• win-lose (Chinese stratagems174: Yin-Yang exists everywhere, therefore strata-

gems can also be used); and

• a Sun Tzu-like strategist approach based on the principle that the marketplace

is a battlefield (mostly in the case of younger negotiators).

When trust is high, the Chinese will negotiate like a ‘Confucian gentleman’, adopt a

cooperation strategy, and take a win-win approach to the negotiations. When they

expect and seek long-term relationships (win-win negotiations), Confucian vir-

tues of benevolence and compassion, honesty and righteousness and faithfulness

173 The origin of such negative attitudes can be a reaction to the antinationalistic even racist, xenophobic fears as expressed in the yellow peril that emerged at the end of 19th century as a fear of Chinese immigrants, when Chinese labourers were brought to the USA to replace

emancipated black communities as a cheap source of labour (see Svetličič, 2020a). Simply put,

the Chinese are »non-Caucasian«.

174 There are 36 such stratagems based on winner to take all principle, being mostly attributed to Sun Tzu thoughts. Their goals are to confuse the enemy in order to vanquish him. They

involve deception of some kind.

168

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

will be amplified. In contrast, when trust is low the Chinese, particularly younger

ones, like to win following a competitive strategy and adopt a win-lose approach.

Such an approach may change after good guanxi has been established . In the case of high hierarchy and power distance, the Chinese negotiators will resort to rites

and rituals as a tactic of a more competitive or distributive (win-lose) Sun Tzu

negotiation strategy.

Such dualism is based on the importance attributed to the network of relation-

ships, or guanxi. Guanxi may be described as a Chinese system of doing business based on personal relationships. It literal y means connections, relations or relationships. On the firm level, guanxi opens dialogues, builds trust and facilitates

exchanges of favours, and dominates (business and personal) activities in China.

A guanxi network basical y consists of your relatives, schoolmates, co-workers,

long-term business partners, neighbours and new friends. It is not used only when

needed but should be constantly maintained and developed (occasional friendly

meetings, dinners, lunches, sport…). One should apply guanxi before the negotia-

tions start in the phase of looking for partners. In this event, you first look for a

partner that has a good relationship with your potential partner and then create a

guanxi with them in order for them to introduce you to the prospective partner.

Relationships are best developed during informal meetings before the official, for-

mal, negotiations begin. Empirical research confirms that such initial informal

meetings with the Chinese are essential as the Chinese tend to develop relation-

ship before actual negotiations take place. Managers must spend some quality time

with their Chinese partners (lunches, dinners). This is frequently the occasion

when some of the most difficult issues are resolved. Developing such relations be-

fore the meeting is extremely important, as shown by the fact that noteworthy de-

cisions can actual y be made outside of formal meetings. Formal negotiations are

frequently seen as window dressing. Nevertheless, one should prepare for formal

meetings in detail since relations are more important than business (a meeting

might be postponed because an old friend has arrived). This may hold for tradi-

tional negotiators, but might not necessarily apply to younger business people in

the modern part of China who have traded with Westerners for the past decade

or so. They may depart from tradition Confucius culture patterns and be cunning

in doing business, persistent and inventive, wanting to lead the way. Today, we may also encounter vulgar individualism, like is seen in many other transition

economies.

Another important element of preparation is getting to know persons on the OS

of the table, their personal characteristics, character, education, status in the firm/

society, private life, or hobbies. One reason for this is to avoid making mistakes by

stereotyping partners because there may be huge differences between them and





Overcoming Cross-Cultural Differences so as to Enhance Bilateral Cooperation

169

they might depart substantial y from the learned national stereotypes. An extra

problem with their personal characteristics is that the Chinese seldom show any

emotions with facial gestures, have a poker face, hide their emotions and are slow

in the negotiating process. This makes it only rare that you can comprehend what

they are thinking about your proposals, for instance.

Their perception of time is completely different. They have all the time in the

world. Accordingly, negotiations progress slowly and may take a long time be-

cause the Chinese are repetitious, cautious, patient yet also thrifty. They negoti-

ate step by step in an unhurried manner, looking beyond the deal, prioritising

mutual trust over the longer term. This makes it difficult for Westerners to keep

calm, to not rush them to make a decision or speak in a loud voice to hurry them

up. Such behaviour could erode the trust and create mistrust between the part-

ners. Negotiations may also be seen by the Chinese like a scholarship. Therefore,

the team may be changing so that many people have the advantage of learning.

Although Confucian ideology emphasises the need to invest time and energy in

relationship-building, time is an increasingly rare commodity, even for traditional

Chinese negotiators faced with the pressures of globalisation and influence from

the West.

The Chinese place values and principles above money and expediency. Therefore,

putting too many eggs in the basket called logic is a mistake. A combination of

courtesy with firmness and showing humility and respect for age and rank is a must.

8.3. HOW ARE THESE GENERAL PRINCIPLES ECHOED IN

REAL-LIFE NEGOTIATIONS?

Pfajfar and Małecka (2020) looked at the bottom-up experiences of six Slovenian

multinationals of various industries, sizes and diverse international strategies but

with a strong presence in China175.

Their first conclusion was that, surprisingly, there are some similarities in the two

cultures. Relationships labelled as guanxi in China are similar to what Slovenians

would call ‘connections and acquaintances. This may be understood as a similar-

ity of the two cultures. Guanxi, as one of the main features of Chinese cultural

identity, has two parts: Guan (the door) and Xi (to tie and which can be inter-

preted as coming through the door and remaining connected, but also not being

175 This subchapter is largely based on their research conclusions.

170

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

trusted if you are outside the door (a foreigner). The Slovenian version relates

particularly to getting things done easier and faster if possessing a high level of

this characteristic and especial y arises from the previous socialist regime, when

knowing government officials helped people move forward in their daily life.

The second similarity is that both value the importance of long-term relation-

ships, being polite and modest and hard working. In China, strong competition

in the workplace sees a large share of workers putting in overtime, which is not

nearly the case in Slovenia. Stil , Slovenians like to label themselves as a hard-

working nation by European standards. The third similarity is that both cultures

are proud of their national identity and origins and that gender equality as an

important Slovenian value is also present in Chinese society.

Their research confirmed that negotiations in China are contextual y- and ge-

ographical y-based and may differ substantial y in terms of the location within

China, the industry, or business partner characteristics. Most interviewees claim

that negotiations in China are very connected with the hierarchy, which is usual y

tied to the age of one’s counterpart. The most important and biggest decisions are

always made by the firm owner if the firm is private, or the highest-ranked busi-

ness person in state-owned firms, sometimes even by politicians.

Guanxi has been confirmed to be very important. In China, one can achieve much

more through personal acquaintances and good interpersonal relationships com-

pared to any contractual agreement. When the trust of your Chinese business

partner has been gained, business will run more smoothly. However, guanxi can

also be understood as negative since as it may (especial y in public tenders or

while cooperating with a public company) increase the bureaucracy, limit any di-

rect approach to the market and extend the supply chain (also in terms of addi-

tional costs). In general, it still holds that long-term relationships are supported in

China by mutual trust and friendship.

Based on the six case studies in this paper, the Chinese negotiation style varies

depending on the age of the negotiator, the place at which one is negotiating, the

industry you are in, and the guanxi you possess. More importantly, it changes

over time, again showing the dynamic nature of the culture and the need to per-

manently study it. Their study confirms the paradoxical nature of the Chinese ne-

gotiating style (Fang, 2006) where the Chinese negotiator can be both sincere and

deceptive (Yin-Yang) depending on the situation, context and trust between the

negotiating partners. This means that studies on negotiations with the Chinese

that were published a couple of years ago, not to mention a decade, are already

outdated.

Overcoming Cross-Cultural Differences so as to Enhance Bilateral Cooperation

171

The research confirms that the importance of guanxi clearly depends on context,

situation and time. It has proven that in the case of high hierarchy and power

distance, Chinese negotiators will resort to a more competitive and distributive

(win-lose) negotiation strategy. However, when they expect and seek long-term

relationships, Confucian virtues of benevolence and compassion, honesty and

righteousness and faithfulness will be amplified.





172

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

BIBLIOGRAPHY

Anderson, Kym and Strutt, Anna (2011): The Changing Geography of World Trade: Pro-

jections to 2030. Available at https://www.gtap.agecon.purdue.edu/resources/down-

load/5232.pdf.

Ashok, Sethi (2019): Chinese Consumers: Exploring the World’s Largest Demographic.

London: Palgrave Macmil an.

Attanayke, Chulanee (2016): One Belt One Road: Will China succeed in convincing the

world of its Peaceful Rise. Paper presented at the ISA-Asia Pacific Conference 2016

held at City University, Hong Kong. Available at https://www.academia.edu/34678878/

One_Belt_One_Road_Will_China_succeed_in_convincing_the_world_of_its_Pea-

ceful_Rise

Bank of Slovenia (2017): Neposredne naložbe – Direct Investment, 2016, Year 21, No. 1,

November 2017, Ljubljana.

Bank of Slovenia (2020): Neposredne naložbe – Direct Investment, 2019, Year 24, No. 1,

Nov. 2020, Ljubljana.

Berkofsky, Axel (2020): Mapping China's Global Future: Playing Ball or Rocking the

Boat? Available at https://www.ispionline.it/en/pubblicazione/mapping-chinas-global-

future-playing-ball-or-rocking-boat-24927.

Bertoncelj, Mateja (2018): Cosylab osvaja Kitajce s programsko opremo za zdravljenje raka.

Kaj pa Slovenija? Finance. Available at https://izvozniki.finance. si/8931552/Cosylab-

-osvaja-Kitajce-s-programsko-opremo-za-zdravljenje-raka-Kaj-pa--Slovenija?utm_

content=link_11&utm_medium=email&utm_campaign=izvozniki_pismo_

urednice&utm_source=29032018&f_tid=3194f26e9cd1e5783deec9bbb9a9b c3e.

Bofulin, Martina (2016): Daleč doma: Migracije iz Ljudske republike Kitajske v Slovenijo.

Ljubljana: Založba ZRC.

Bojinović Fenko, Ana and Zlatko, Šabič (2017): Slovenia’s Foreign Policy Opportunities

and Constraints: The Analysis of an Interplay of Foreign Policy Environments, Croa-

tian International Relations Review, 79(23): 41–72.

Bojinović Fenko, Ana and Jure, Požgan (2014): Regionalisation of Slovenian foreign po-

licy: Escape from the Balkans, return to the Western Balkans. Studia Historica Slove-

nica, 14(1): 55–73.

Božin, Uroš (2018): Je proizvodnja avtov na Kitajskem res kakovostnejša kot v Evropi?

Finance. Available at ht ps://avto.finance.si/8933718/Je-proizvodnja-avtov-na-Kitajskem

-res-kakovostnejsa-kot-v-Evropi?cctest&.

Bradford, Anu (2020): The Brussels Effect: How the European Union Rules the World.

Oxford: Oxford University Press.

Brander, James A.,Victor, Cui and Ilan, Vertinsky (2017): China and intellectual property

rights: A challenge to the rule of law. Journal of International Business Studies, 48(7):

908–921.

Bibliography

173

Brown, Kerry (2020): The China Dream: The Regional and Global Strategic Story. In: Ber-

kofsky, Axel and Giulia, Sciorati, ed.: Mapping China’s Global Future: Playing Ball or

Rocking the Boat (pp. 12–23). Milano: ISPI. Available at https://www.ispionline.it/si-

tes/default/files/pubblicazioni/ispi_mappingchina_web.pdf#page=12.

Buckley, Peter J., and Liu, Xin (2009): The determinants of Chinese outward foreign

direct investment. Journal of International Business Studies, 40(2): 353–354.

Bučar, Maja and Jana, Arbeiter (2019): Vzhodna Azija: od sledilcev do vodilnih na podro-

čju raziskav in razvoja. In: Andrej, Bekeš, Jana, S. Rošker and Zlatko, Šabič, ed.: Procesi

in odnosi v Vzhodni Aziji. Ljubljana: EAR.

Burger Anže, Sabina, Kajnč, Pavle, Sicherl and Marjan, Svetličič (2008): Implikacije dol-

goročnih prognoz razvoja sveta, EU in držav BRIK na slovensko strategijo odnosov

z velikimi silami. Povzetek, smernice in priporočila. CRP V5-0269; Implikacije dol-

goročnih prognoz razvoja sveta, EU in držav BRIK na slovensko strategijo odnosov z

velikimi silami. Ljubljana: FDV.

Burgoon, Brian and Damian, Raess (2014): Chinese investment and European labor: Sho-

uld and do workers fear Chinese FDI? Asia Europe Journal, 12(1): 179–197.

Burjanadze, Anna (2017): China and the EU within the framework of «16+1»:

Obstacles and Prospects. Available at http://www.lai.lv/viedokli/china-and-the-eu-

within-the-framework-of-161-obstacles-and-prospects-631.

Center for Strategic and International Studies. (2020): Does China Pose a Threat to Global

Rare Earth Supply Chains? Available at https://chinapower. csis.org/china-rare-earths/

Cencen, Marjan (2011): Mednarodni položaj Kitajske po koncu hladne bojne. Ljubljana:

FDV.

Chang, Ha-Joon (2003a): Kicking Away the Ladder: The »Real« History of Free Trade.

Available at https://fpif.org/kicking_away_the_ladder_the_real_history_of_free_trade

China Policy (2017): China Going Global; between ambition and capacity. Beijing. Avai-

lable at https://policycn.com/wp-content/uploads/2017/05/2017-Chinas-going- -glo-

bal-strategy.pdf.

China Global Television Network (2020): China’s economy in the next 5 years – con-

sumption and tech to drive growth. Available at https://news.cgtn.com/ news/2020-

10-30/China-s-economy-in-next-5-years-consumption-tech-to-drive- -growth-V0I-

JRTZJL2/index.html#:text=There%20is%20great%20potential%20in%20 China%20

s%20domestic%20demand.,consumption%20is%20the%20potential%20 growth%20

space%20in%20consumption

Chen, Zhimin (1916): China, the European Union and the fragile world order. Journal of

Common Market Studies 54: 775–792.

Cohen, Raymond (1997): Negotiating Across Cultures: International Communication in

an Interdependent World. Washington, DC: United States Institute of Peace Press.

China Power (2020): Does China pose a threat to global rare earth supply chains?. Availa-

ble at https://chinapower.csis.org/china-rare-earths/.

Čeplak Mencin, Ralf (2012): V deželi nebesnega zmaja – 350 let stikov s Kitajsko. Založba

*cf, Ljubljana.

Darby, Megan (2016): Bosnia faces legal action over Chinese-backed coal dash. Cli-

mate Home. Available at http://www.climatechangenews.com/2016/10/28/

bosnia--faces-legal-action-over-chinese-backed-coal-dash.

174

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Darby, Christopher and Sarah, Sewall (2021): The Innovation Wars: America’s Eroding

Technological Advantage. Foreign Affairs. Available at https://www.foreignaffairs.

com/articles/united-states/2021-02-10/technology-innovation-wars.

Davies, Howard and Matevž, Rašković (2017): Understanding a Changing China 1st Edi-

tion. London: Routledge.

Dekker, Brigitte and Maaike, Okano-Heijmans (eds.) (2020): Dealing with China on

high-tech issues Views from the US, EU and like-minded countries in a chan-

ging geopolitical landscape. Available at https://www.clingendael.org/publication/

dealing-china-high-tech-issues.

Delo (2015): Kitajci bodo vložili v slovenski Elaphe. Available at http://www. times.si/

gospodarstvo/kitajci-bodo-vlozili-v-slovenski-elaphe--90098ef7fc180c25e- 20b2e-

195f53e3d7684083c5.html

Development Research Center of the State Council, the People’s Republic of China (2019):

Inovative China New Drivers of Growth. Available at https://openknowledge.world-

bank.org/handle/10986/32351.

Drabble, Dave (2019): Share of world GDP throughout history. Infogram. Available at https://

infogram.com/share-of-world-gdp-throughout -history-1gjk92e6yjwqm16

Edwards, Jim (2017): 500 years ago, China destroyed its world-dominating navy because

its political elite was afraid of free trade. Independent. Available at https://www.in-

dependent.co.uk/news/world/americas/500-years-ago-china-destroyed-its-world-do-

minating-navy-because-its-political-elite-was-afraid-free-trade-a7612276.html.

European Commission (2016): Elements for a new EU strategy on China. High Represen-

tative of the Union for Foreign Affairs and Security Policy. Available at https://eeas.

europa.eu/archives/docs/china/docs/joint_communication_to_the_european_parlia-

ment_and_the_council_-_elements_for_a_new_eu_strategy_on_china.pdf

European Commission (2018a): FEPS Post Summit Briefing: European Council. Avai-

lable at https://www.feps-europe.eu/component/attachments/attachments.html?task

=attachment&id=91

European Commission (2018b): EU–China Relations factsheet. Available at https://

eeas.europa.eu/headquarters/headquarters-homepage_en/34728/EU-China%20

Relations%20factsheet

European Commission (2019): EU-China – A Strategic Outlook. Available at https://

ec.europa.eu/info/sites/info/files/communication-eu-china-a-strategic-outlook.pdf.

European Commission (2019a): EU–China Summit Joint statement. Available at https://

www.consilium.europa.eu/media/39020/euchina-joint-state- ment-9april2019.pdf

European Commission (2020a): EU–China Strategic Agenda for Cooperation. Available

at https://eeas.europa.eu/archives/docs/china/docs/eu-china_2020_strategic_ agenda

_en.pdf.

European Commission (2020b): Report on the protection and enforcement of intellec-

tual property rights in third countries. Available at https://trade.ec.europa.eu/doclib/

docs/2020/january/tradoc_158561.pdf

European Commission (2020c): European Union, Trade in goods with China. Available

at https://webgate.ec.europa.eu/isdb_results/factsheets/country/details_china_en.pdf

European Commission (2020d): EU CHINA RELATIONS. Available at https://eeas.eu-

ropa.eu/sites/eeas/files/eu-china_factsheet_06_2020_0.pdf

Bibliography

175

European Commission (2020e, October 28): EU strengthens trade enforcement arsenal

with revamped regulation. Available at https://ec.europa.eu/commission/presscorner/

detail/en/IP 20_1994

European Commission (2020f): China – Trade. Available at https://ec.europa.eu/trade/

policy/countries-and-regions/countries/china.

European Commission (2020g): Communication from the Commission to the European

Parliament, The European Council, The Council, The European Economic and Social

Committee and the Committee of the Regions Europe’s moment: Repair and Prepare

for the Next Generation (COM/2020/456 final).

Eurostat (2017a): International trade in goods. Available at http://ec.europa.eu/eurostat/

web/ international-trade-in-goods/data/database

European Parliament (2018): Global Trends to 2035; Economy and Society. Available at

https://www.europarl.europa.eu/RegData/etudes/STUD/2018/627126/EPRS_STU

(2018)627126_EN.pdf.

European Parliament (2019b): Towards a new EU policy approach to China; 21st EU–

China Summit. Available at https://www.europarl.europa.eu/thinktank/en/document.

html?reference=EPRS_ATA(2019)637913.

European Parliament (2020a): International trade policy. Available at https://www.euro-

parl.europa.eu/thinktank/en/ document.html?reference=EPRS_BRI(2020)652033.

European Parliament (2020b): The geopolitical implications of the COVID-19 pandemic.

Available at https://www.europarl.europa.eu/RegData/etudes/ STUD/2020/603511/

EXPO_STU(2020)60351_EN.pdf

European Parliament (2021b): EU-China Comprehensive Agreement on Investment

Levelling the playing field with China. Available at https://www.europarl.europa.eu/

thinktank/sl/document.html?reference=EPRS_BRI%282021%29679103.

Fabry, Livre (2019): Meeting the challenges of EU–China relations Available at https://

institutdelors.eu/wp-content/uploads/2019/04/190409- -EN-Chine-fabry.pdf.

Fang, Tony (2006): ‘Negotiation: The Chinese style’, Journal of Business & Industrial Mar-

keting, 20(1): 50–60.

Fang, Tony (2012): Yin Yang: a new perspective on culture. Management and Organiza-

tion Review, 8(1): 25–50.

Faure, Gabriel Urbain (1998): Negotiation: The Chinese concept. Negotiation Journal,

14(2): pp. 137–148.

Faure, Guy Olivier and Tony, Fang, (2008): Changing Chinese values: keeping up with

paradoxes. International Business Review, 17(2): 194–207.

Ferchen, Matt, Frank, N. Pieke, Frans-Paul, van der Putten, Tianmu, Hong and Jurriaan,

de Blécourt (2018): Assessing China’s Influence in Europe through Investments in

Technology and Infrastructure. Four Cases. Available at https://leidenasiacentre.nl/

wp-content/uploads/2018/12/Influence-in-Europe-through-Investments-and-Tech-

nology-anf-infra.pdf.

Financial Times (2020): Tech faces $3.5tn cold war costs. Available at https://www. ft.com/

content/ac59c289-70ee-414d-ae1a-6864507c0b7f

Finance (2018, 19 March): Dosje Kitajska Slovenija, 14–31.

Fister, Silvija (2016): China and Slovenia – Building a firm foundation for economic

cooperation. Interview with H.E. YE Hao, Ambassador of the People’s Republic of

China in Slovenia. Slovenia Times. Available at http://www.sloveniatimes.com/

china-and-slovenia-building-a-firm-foundation-for-economic-cooperation

176

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Geeraerts, Gustaaf (2011): China, the EU, and the New Multipolarity. European Review,

19(1): 57–67.19(1), 57–67.

Geeraerts, Gustaaf (2013): EU-China Relations. In: Thomas, Christiansen, Emil, Kirch-

ner and Philomena, Murray (eds.), The Plagrave Handbook of EU-Asia Relations (pp.

492–508) Houndmil s: Palgrave Macmil an.

Geeraerts, Gustaaf (2019): The EU-China partnership: balancing between divergence and

convergence. Asia Europe Journal 17: 281–294.

Giustozzi, Corrado (2020): What Does the EU Say the EU Say About 5G? Available at

https://www.ispionline.it/en/pubblicazione/what-does-eu-say-about-5g-27496.

Glaser, Bonnie S., and Murphy, Melissa (2009): Soft power with Chinese characteri-

stics. Center for Strategic and International Studies. Available at http://csis-prod.

s3.amazonaws.com/s3fs-public/legacy_files/files/media/csis/pubs/090310_chinese-

softpower_chap2.pdf

Godement, François (2020): The Shrinking Margins for Debate. Available at https://www.

institutmontaigne.org/ressources/pdfs/publications/china-trends-7-EN.pdf.

Godement, François (2021): Wins and Losses in the EU-China Investment Agre-

ement (CAI). Available at https://www.institutmontaigne.org/en/publications/

wins-and-losses-eu-china-investment-agreement-cai

Godement, François and Abigaël Vasselier (2017): China at the gates: A new power audit

of EU-China relations, The European Council on Foreign Relations (ECFR). Available

at https://ecfr.eu/publication/china_eu_power_audit7242/.

Gorenje (2019): With reorganization, Gorenje is looking to ensure the conditions con- du-

cive to long-term growth and development. Available at https://www.gorenje- group.

com/en/media/news/2019/04/9015-With-reorganization-Gorenje-is-looking- -to-en-

sure-the-conditions-conducive-to-long-term-growth-and-development

Grant, Charles and Katinka, Barysch (2008): Can Europe and China shape a new world

order? Available at https://www.cer.eu/sites/default/files/publications/attachments/

pdf/2011 /p_837–611.pdf

Grgič, Maja (2018): V igri za novega lastnika Gorenja menda tri kitajske družbe. Delo.

Available at https://old.delo.si/gospodarstvo/podjetja/v-igri-za-novega-lastnika-gore-

nja-menda-tri-kitajske-druzbe.html.

Grieger, Gisela (2020a): EU—China Comprehensive Agreement on Investment Levelling

the playing field with China. EU–China Comprehensive Agreement on Investment:

Levelling the playing field with China [International Agreements in Progress][Policy

Podcast] | European Parliamentary Research Service Blog (epthinktank.eu).

Grieger, Gisela (2020b): EU-China relations Taking stock after the 2020 EU-

-China Summit. Available at https://www.europarl.europa.eu/RegData/etudes/

BRIE/2020/651987/EPRS_BRI(2020)651987_EN.pdf

Góralczyk, Bogdan,(2017): China’s interests in Central and Eastern Europe: Enter the dra-

gon. European View 16:153–162.

Gros, Daniel and Cinzia, Alcidi (2013): The Global Economy in 2030.Trends and Strate-

gies for Europe. Brussels: CEPS..

Gupta, Pritish (2020): The ‘17+1’ Initiative: Is China Losing Its Charm in

Central and Eastern Europe? Available at https://www.orfonline.org/

expert-speak/17-plus-1-initiative-china-losing-charm-central-eastern-europe/.

Bibliography

177

Ham, P. Van (2005): Power, Public Diplomacy and the Pax Americana. In: Melissen, J.

(ed.): The New Public Diplomacy: Soft Power in International Relations (pp. 47–66).

New York: Palgrave Macmil an.

Hanemann, Thilo and Mikko, Huotari (2018): EU-China FDI: Working towards Reci-

procity in Investment Relations with China. Available at http://www.iberchina.org/

files/2018/investment_merics_reciprocity_.pdf

Hanemann, Thilo, Mikko, Huotari and Agatha, Kratz (2019): Chinese FDI in Europe: 2018

Trends and Impact of New Screening Policies. A report by Rhodium Group (RHG)

and the Mercator Institute for China Studies (MERICS). Available at https://www.me-

rics.org/sites/default/files/2019-03/190311_MERICS-Rho- dium%20Group_COFDI-

-Update_2019.pdf

Hel ström, Jerker (2016): China’s Acquisitions in Europe, European Perceptions of Chi-

nese. Investments and their Strategic Implications. Stockholm: FOI, Swedish Defence

Research Agency.

HKTDC (2016): Belt and Road Opportunities in Central and Eastern Europe. Available at

https://research.hktdc.com/en/article/MzgyOTAzMTY2

Helberg, Jacob (2020): In the New Cold War, Deindustrialization Me-

ans Disarmament Available at https://foreignpolicy.com/2020/08/12/

china-industry-manufacturing-cold-war/8/12/2020

Hobbs, Carla (ed.) (2020): Europe’s digital sovereignty: From rulemaker to superpower

in the age of US-China rivalry. Available at https://ecfr.eu/wp-con- tent/uploads/eu-

rope_digital_sovereignty_rulemaker_superpower_age_us_china_ri- valry.pdf

Hofstede, Geert (1994): The business of international business is culture. International Bu-

siness Review, 3(1): 1–14.

Hong Cheng, Ruixue Jia, Dandan Li and Hongbin, Li (2019): The Rise of Robots in China.

Journal of Economic Perspectives, 33(2): 71–88

Huang, Yukon (2016): Understanding China’s Belt & Road Initiative: Motivation, frame-

work and assessment. China Economic Review, 4: 314–321.

Huang, Yukon and Jeremy, Smith (2019): China’s Record on Intellectual Property Ri-

ghts Is Getting Better and Better. Foreign Policy. Available at https://foreignpolicy.

com/2019/10/16/china-intellectual-property-theft-progress/

IMF (2018): People's Republic of China: 2018 Article IV Consultation-Press Re-

lase; Staff Report; Staff Statement and Statement by the Executive Director for the

People's Republic of China. Available at https://www.imf.org/en/Publications/CR/

Issues/2018/07/25/Peoples-Republic-of-China-2018-Article-IV-Consultation-Press-

-Release-Staff-Report-Staff-46121

Information Office of the State Council, The People’s Republic of China (2018): The Facts

and China’s Position on China-US Trade Friction. Available at https://china.usc.edu/

sites/default/files/article/attachments/Chinese%20WP%20Sino-Am%20Trade.pdf.

Istenič, Saša (2017): China-CEE Relations in the 16+1; Format and Implications for Ta-

iwan; 14th Annual Conference on ”China-EU Relations and the Taiwan Question”.

Available at https://www.swp-berlin.org/fileadmin/contents/ products/projekt_papi-

ere/Taiwan2ndTrack_Sa%C5%A1a_Isteni%C4%8D_2017.pdf

Ivančič, Vasja (2009): Poslovanje slovenskih podjetij s Kitajsko (BA Thesis). University of

Ljubljana, Faculty of Social Sciences, Ljubljana.

178

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Jaklič, Andreja and Svetličič, Marjan (2003): Enhanced transition through outward in-

ternationalization: outward FDI by Slovenian firms. Aldershot: Ashgate.

Jaklič, Andreja and Svetličič, Marjan (2019): China and Central and Eastern European

Countries within ‘16+1’: Group or Bilateral Relations? Entrepreneurial Business and

Economics Review, 7(2): 83–100.

Jenko, Miha (2016): Slovenija brez kitajske vizije. Delo. Available at https://www. delo.si/

svet/ekonomija/slovenija-brez-kitajske-vizije.html

Jinghua, Lyu (2020): The race of Chinese Companies in the 5G Competition. Available

at https://www.ispionline.it/en/pubblicazione/race-chinese-companies-5g-competi-

tion-27511.

Johnson, Keith and Lara, Seligman (2019). How’ China Could Shut Down America’s

Defenses. Foreign Policy. Available at https://foreignpolicy.com/2019/06/11/

how-china-could-shut-down-americas-defenses-rare-earth/.

Johnson, Keith and Elias, Groll (2019): China Raises threat of Rare-Earth Cu-

toff to U.S. Foreign Affairs. Available at https://foreignpolicy.com/2019/05/21/

china-raises-threat-of-rare-earth-mineral-cutoff-to-us/

Juncker, Jean-Claude (2020): Europe is a world power and unaware of it. Available at

https://wvw.robert-schuman.eu/en/ doc/entretiens-d-europe/ee-100-en.pdf

Kang, Lili, Peng, Fei, Zhu, Yu and Pan, An (2018): Harmony in Diversity: Can the One

Belt One Road Initiative Promote China’s Outward Foreign Direct Investment? Susta-

inability, 10(9): 3264.

Katz, Lothar (2016): Negotiating international business: the negotiator’s reference guide to

50 countries around the world. Charleston: Booksurge.

Kharas, Homi (2010): The Emerging Middle Class in Developing Countries. OECD Deve-

lopment Centre Working Paper No. 285. Paris: OECD.

Kharas, Homi (2017): The Unprecedented expansion of the Global Middle Class; an update.

Global Economy & Development Working Paper No. 100. Washington: Brookings.

Kharas, Homi and Kristofer, Hamel (2018): A global tipping point: Half of world is

now middle class or wealthier. Available at https://www.brookings.edu/blog/fu-

ture-development/2018/09/27/a-global-tipping-point-half-the-world-is-now-mid-

-dle-class-or-wealthier/?utm_campaign=Brookings%20Brief&utm_source=hs_

email&utm_medium=email&utm_content=66298094

Kirkland & Ellis (2020): New EU Foreign Direct Investment Regulations Take Ef-

fect. Available at https://www.kirkland.com/publications/ kirkland-alert/2020/10/

en-fdi-regulation.

Kratz, Agata, Mikko, Huotari, Thilo, Hanemann, and Rebecca, Arcesati (2020): Chi-

nese FDI in Europe: 2019 Update. Available at https://rhg.com/research/chinese-fdi

-in-europe-2019-update/

Kos, David (2014): Kitajci v Slovenijo prihajajo z denarjem, a poslovanje z njimi je vse prej

kot preprosto. Siol. Available at https://siol.net/posel-danes/novice/kitajci-v-slovenijo-

-prihajajo-z-denarjem-a-poslovanje-z-njimi-je-vse-prej-kot-preprosto-video-173466.

Kovač, Bogomir (2020): Nevarna Prihodnost. Mladina. Available at https://www.mladina.

si/202717/nevarna-prihodnost/

Kralj, Tina and Marjan, Svetličič, (2017): Nepoznavanje kulturnih razlik kot oviramedna-

rodnega poslovanja slovenskih podjetij? Teorija in praksa, 54(3-4): 552–571.

Bibliography

179

Kredo, Adam (2020): China Working to Assume Control of U.N. Agencies. Available

at https://freebeacon.com/nationd-security/china-working-to-assume-control-of-u-

-n-agencies/

Kundnani, Arun (2014): The Muslims are Coming! London: Verso.

Kupchan, A. Charles (2012): No One’s World. Oxford: Oxford University Press.

Kurlantzick, Joshua (2007): Charm Offensive: How China’s Soft Power is Transforming

the World. New Haven and London: Yale University Press.

Lajčiak, Milan (2017): Chinaś cultural fundamentals behind current foreign policy vi-

ews: Heritage of old thinking habits in Chinese modern thoughts. Journal of Inter-

national Studies, 10(2): 9-27.

Leke, Acha, Mutsa Chironga and Georges, Desvaux (2018a): Africa’s overlooked bu-

siness revolution Global business leaders who misunderstand Africa run the risk

of missing out on one of the 21st century’s great growth opportunities. Mc Kin-

sey Quarterly. Available at https://www.mckinsey.com/~/media/McKinsey/Fe atu-

red%20Insights/Middle%20East%20and%20Africa/Africas%20overlooked%20 bu-

siness%20revolution/Africas-overlooked-business-revolution-web-final.ashx.

Li, Daokui (2020): The »double circulation« of the Chinese economy. China Trends

#7 - La »double circulation«. Available at https://www.institutmontaigne.org/blog/

china-trends-7-la-double-circulation-de-leconomie-chinoise.

Li, Xin and Worn, Verner (2011): Building China’s Soft Power for a Peaceful Rise, Journal

of Chinese Political Science 16(1): 69–89.

Li, Shaomin, Alon, Ilan (2020): China’s intellectual property rights provocation: A poli-

tical economy view. Journal of International Business Policy 3: 60–72.

Lin, Christina (2011): China’s New Silk Road to the Mediterranean: The Eurasian Land

Bridge and Return of Admiral Zheng He, ISPSW Strategy Series, No. 165. Berlin:

ISPSW.

Lipton, Gabe (2018): The elusive ‘better deal’ with China. The Atlantic. Available at

https://www. theatlantic.com/international/archive/2018/08/china-trumptrade-

united-states/567526/

Lipušček, Uroš (2013): Interpretations of the Chinese Boxer Rebellion in the Slovenian

Press at the Beginning of the 20th Century. Asian Studies, 17(2): 35–49.

Liu, Melinda (2019): 30 Years After Tiananmen: How the West Still Gets China Wrong. Washington once mistakenly thought the crackdown would be temporary. It was wrong then, just as it’s wrong about a new Cold War now, June. Avai-

lable at https://foreignpolicy.com/2019/06/04/30-years-after-tiananmen-how-the

-west-st i l l-gets-china-wrong/?ut m_s ource=PostUp&ut m_me dium

=email&utm_campaign=13485&utm_term=Flashpoints%20OC.

Lund, Susan, James, Manyika, Jonathan, Woetzel, Jacques, Bughin, Me-

kala, Krishnan, Jeongmin, Seong and Mac, Muir (2019): Globaliza-

tion in transition: The future of trade and value chains. Available at

https://www.mckinsey.com/featured-insights/innovation-and-growth/

globalization-in-transition-the-future-of-trade-and-value-chains.

Lynch, Colum (2020): China's Soft-Power Grab. Available at https://foreignpolicy.

com/2020/08/14/china-soft-power-united-nations-hong-kong-crackdown/

Made in China 2025 (2015): State Council Issues ‘Made in China 2025’ Plan. Available at

https://isdp.eu/publication/made-china-2025/.

180

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Makovec, Urška (2015): Južnih sosedov ne maramo, z EU kar zadovoljni. Siol. Available at

https:// siol.net/novice/slovenija/juznih-sosedov-ne-maramo-z-eu-kar-zadovoljni-397269

Makocki, Michal and Zoran, Nechev (2017): Balkan corruption: the China connection.

EU Institute for Security Studies. Available at https://www.iss.europa.eu/content/

balkan-corruption-china-connection

Magri, Paolo, (2019): Introduction, in Amighini, Alessia ed. (2019): China’s Race to Glo-

bal Technology Leadership. Milano: ISPI.

Manager (2011): Kaj morate vedeti, preden se podate na največji trg na svetu. Available at

https://www.finance.si/315693

Manyika, James, Gary, Pinkus and Monique, Tuin (2020): Rethinking the future

of Amnerican capitalism. Rethinking the future of American capitalism. Avai-

lable at https://www.mckinsey.com/featured-insights/long-term-capitalism/

rethinking-the-future-of-american-capitalism.

Maselj, Brane and Silva, Čeh (2017): Po novi svilni poti prihajajo nove naložbe in skrbi.

Available at https://www.delo.si/svet/ekonomija/po-novi-svilni-poti-prihajajo-nove-

-nalozbe-in-skrbi.html.

McEven, William, Fang, Xiaoguang, Zhang, Chuanping and Richard, Burkholder, (2006):

Inside the mind of the Chinese consumer. Massachusetts: Harvard Business Review.

McGiffert, Carola, ed., (2009): Chinese soft power and its implications for the United

States: competition and cooperation in the developing world. Available at https://

csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/media/csis/

pubs/090403_mcgiffert_chinesesoftpower_web.pdf.

McKinsey (2015): The China Effect On Global Innovation. Available at https://www.mck-

insey.com/~/media/McKinsey/Featured%20Insights/Innovation/Gauging%20the%20

strength%20of%20Chinese%20innovation/MGI%20China%20Effect_Full%20re-

port_October_2015.pdf?shouldIndex=false

McKinsey (2019a): China Brief: The state of the economy. Available at https://

www.mckinsey.com/featured-insights/china/china-brief-the-state-of-the-

-economy?cid=other-eml-alt-mip-mck&hlkid=a7f5a6b5e90a44789a213cfe827f82

be&hctky=2110282&hdpid=ab4bc4f2-f48d-426f-a0f9-3949780c575a?reload

McKinsey (2019b): China Luxury Report 2019 How young Chinese consumers are re-

shaping global luxury. Available at https://www.mckinsey.com/~/media/ mckinsey/

featured%20insights/china/how%20young%20chinese%20consumers%20 are%20re-

shaping%20global%20luxury/mckinsey-china-luxury-report-2019-how-young-chi-

nese-consumers-are-reshaping-global-luxury.ashx

McKinsey (2019c): China and the world: Inside the dynamics of a changing relationship.

Available at https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/

China/China%20and%20the%20world%20Inside%20the%20dynamics%20of%20

a%20changing%20relationship/MGI-China-and-the-world-Full-Report-Feb-2020-

-EN.pdf

McKinsey (2019d): The future of Asia. Discussion paper. Available at https://www.

mckinsey.com/~/media/McKinsey/Featured%20Insights/Asia%20Pacific/The%20

fu-ture%20of%20Asia%20Asian%20flows%20and%20networks%20are%20defi-

ning%20 the%20next%20phase%20of%20globalization/MGI-Future-of-Asia-Flows-

-and-Trade-Discussion-paper-Sep-2019.pdf

Bibliography

181

Michalski, Anna and Zhongqi, Pan (2017): Unlikely partners: China the European Union,

and the forging of a strategic partnership. Singapore: Palgrave MacMil an.

Milanovic, Branko (2021): China’s Inequality Will Lead It to a Stark Choice. Available at https://www.foreignaffairs.com/articles/china/2021-02-11/chinas-inequality-wil

-lead-it-stark-choice

Miller, Andrew (2016): Beijing has a documented plan to be the premier global superpower by 2049. It’s over halfway there. Available at https://www.thetrumpet.com/14006

-chinas-hundred-year-strategy

Mingfu, Liu (2015): The China Dream: Great Power Thinking and Strategic Posture in the

Post-American Era. New York: Times Books.

MGRT. (2019): Mednarodni Izzivi 2019-2020 Slovenija Zelena. Ustvarjalna. Pametna.

Available at https://www.izvoznookno.si/Dokumenti/AKTUALNO/2019/Mednaro-

dni_izzivi_2019-2020_celoten_dokument.pdf.

Mirošič, Iztok (2016): Luka Koper in njena konkurenca: kdo bo prvi v Srednji Evropi?

Available at https://www.portalplus.si/1350/luka-koper/

Moravesik, Andrew (2020): The Brussels Effect: How the European Union Rules the

World. Foreign Affairs. Available at https://www.foreign affairs.com/reviews/cap-

sule-review/2020-02-11/brussels-ef fect-how-european-union-rules-world

Morrison, Wayne M. (2018): China’s Economic Rise: History, Trends, Challenges, and Im-

plications for the United States. Available at https://fas.org/sgp/crs/row/RL33534.pdf.

Motoh, Helena, Zlatko, Šabič, Nina, Pejič, ed. (2020): The Role of North Adriatic Ports.

Research project report, Ljubljana.

National Assembly of the Republic of Slovenia (2015): Declaration of Foreign Policy of

the Republic of Slovenia. Available at http://www.mzz.gov. si/fileadmin/pageuplo-

ads/Zakonodaja_in_dokumenti/dokumenti/DECLARATION_ ON_FOREIGN_PO-

LICY_-_FINAL.pd.

NIC (National Intelligence Council) (2012): Global Trends 2030 – Alternative Worlds.

Available at https://www.dni.gov/files/documents/GlobalTrends_2030.pdf.

Nordea (2020): Foreign direct investment (FDI) in China. Available at https://www.nor-

deatrade.com/en/explore-new-market/china/investment

Nye, Joseph S., and David A., Welch (2014): Understanding global conflict & cooperation:

intro to theory & history.9th edn. Essex: Pearson Education.

Nyíri, Pál (2011): Chinese entrepreneurs in poor countries: a transnational ‘middleman

minority’ and its futures, Inter-Asia Cultural Studies, 12(1): 145–153.

OECD (2012): Looking to 2060: Long-term global growth prospects. Paris: OECD.

Oehler-Sincai and Iulia, Monica. (2017): The 16+1 Process: Correlations between the EU

Dependency Attitude Matrix and the Cooperation Intensity with China. Available at

https://16plus1.files.wordpress.com/2017/12/info-cctb-paper-september-2017.pdf

Oertel, Janka (2020): The new China consensus: How Europe is growing wary

of Beijing. Available at https://ecfr.eu/publication/the_new_china_consensus_how_

europe_is_growing_wary_of_beijing

Orr, Gordon (2018): What can we expect in China in 2019?. Available at https://www.

mckinsey.com/featured-insights/china/what-can-we-expect-in-china-in-2019

Ortega, Andrés Klein (2020): The view from Spain: The EU’s bid for digital sove-

reignty. In Hobbs, Carla (ed.) (2020): Europe’s digital sovereignty: From ru-

lemaker to superpower in the age of US-China rivalry. European Coun-

182

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

cil on Foreign Relations (ECFR). Available at https://ecfr.eu/publication/

europe_digital_sovereignty_rulemaker_superpower_age_us_china_rivalry/.

Öterbülbül, Selim (2021): Rebranding China’s Global Role: Xi Jinping at the

World Economic Forum. Available at https://www.e-ir.info/2021/02/20/

rebranding-chinas-global-role-xi-jinping-at-the-world-economic-forum/.

Oxford Economics, (2020): The economic impact of Huawei in Europe. Available at

https://www.oxfordeconomics.com/recent-releases/The-Economic-Impact

-of-Huawei-in-Europe.

Paszak, Pawel (2019): China’s technological transformation and the future of Sino-Ameri-

can competition. Polish Journal of Political Science, 5(2): 87–116.

Peng Mike, David, Ahlstrom, Shawn, M, Carraher and Weilei (Stone), Shi (2017): An

institution-based view of global IPR history. Journal of International Business Studies,

48(7): 893–907.

Pepe, Jacopo Maria (2017): China’s Inroads into Central, Eastern, and South Eastern Eu-

rope Implications for Germany and the EU. Available at https://dgap.org/en/research/

publications/chinas-inroads-into-central-eastern-and-south-eastern-europe.

Petrič, Stojan (2016): Damoklejev meč. Idrija: Ekonomija.

Pezzini, Mario (2012): An emerging middle class. OECD Observer. Available at http://

oecdobserver.org/news/ ful story.php/aid/3681/An_emerging_middle_class.html

Pfajfar, Gregor and Agnieszka, Małecka (2021 forthcoming): Evaluating the role of Con-

fucian virtues in Chinese negotiation strategies using a Yin Yang cultural Perspective.

European J. International Management.

Polaski, Sandra, Sarah, Anderson, John, Cavanagh, Kevin, Gal agher, Manuel, Pérez-Ro-

cha, and Rebecca, Ray (2020): How Trade Policy Failed U.S. Workers – and How to

Fix It. Available at https://ips-dc.org/wp-content/uploads/2020/09/How-US-Trade-

-Policy-Failed-Workers-And-How-to-Fix-It.pdf.

Poggetti, Lucrezia (2017): China’s Charm Offensive in Eastern Europe Challenges EU Co-

hesion. China is building the 16+1 initiative into a platform for its Belt and Road Ini-

tiative, with consequences for the EU. The Diplomat. Available at https://thediplomat.

com/2017/11/ chinas-charm-offensive-in-eastern-europe-challenges-eu-cohesion

Pohl, Joachim (2019): Is international investment threatening or under threat? Columbia

FDI Perspectives.

Polajžer, Boštjan and Turk, Nataša (2013): Kako uspešno poslovati na Kitajskem Ljubljana,

SPIRIT Slovenija; MGRT in GZS, Ljubljana. Available at https://www.izvoznookno.si/

Dokumenti/AKTUALNO/2014/Prirocnik%20o%20poslovanju%20s%20Kitajsko.pdf.

Price Waterhouse (2017): The Long View How will the global economic order change

by 2050? Available at https://www.pwc.com/gx/en/world-2050/assets/pwc-world-

-in-2050-summary-report-feb-2017.pdf

MGRT. (2015): Programme for internationalisation, 2015–2020. Available at http://www.

mgrt.gov. si/fileadmin/mgrt.gov.si/pageuploads/SEKTOR_ZA_INTERNACIONALI-

ZACIJO/ ANG/Program_INTER_2015-2020_koncna_EN-_FINAL.pdf

PWC (2015): The World in 2050. Available at https://www.pwc.com/gx/en/issues/the-eco-

nomy/assets/world-in-2050-february-2015.pdf

PWC (2017): 23. The Long View How will the global economic order change by 2050? Avai-

lable at https://www.pwc.com/gx/en/world-2050/assets/pwc-world-in-2050-summary

-report-feb-2017.pdf.

Bibliography

183

PWC (2018): Study on the Scale and Impact of Industrial Espionage and Theft of Trade

Secrets through Cyber. Available at https://op.europa.eu/en/publication-detail/-/

publication/4eae21b2-4547-11e9-a8ed-01aa75ed71a1/language-en.

Raskovic, Matevz (2018): China-CEE Cooperation in the Eyes of the Beholder: Percepti-

ons of the BRI Initiative and Attitudes towards China in Slovenia. Ljubljana: Faculty

of Economics.

Raspor, Andrej, Darko, Lacmanović, Stranjančević and Iva, Bulatović (2016): Chi-

nese tourists in Slovenia and Montenegro: Preferences, Characteristics and Trip

Motivation. Available at https://www.worldcat.org/title/chinese-tourists-in-

-slovenia-and-montenegro-preferences-characteristics-and-trip-motivation/

oclc/965912683.

Rašković, Matevž and Vuchkovski, Davor (2016): National Stereotypes and Social Dis-

tance towards Slovenians among Former Yugoslav Countries. Teorija in praksa, 53(5):

1079–1094.

Renda, Andrea (in Hobbs, 2020): Artificial intelligence: Towards a pan-European strategy.

Available at https://ecfr.eu/wp-content/uploads/europe_digital_sovereignty_rulema-

ker_superpower_age_us_china_rivalry.pdf

Reuters (2017): China must enhance protection of intellectual property rights. Available at

china-must-enhance-protection-of-intellectual-property-rights-premier-li-iduskbn-

1dn08c

Robinson, Sherman and Karen, Thierfelder (2019): Who’s Winning the US-China Trade

War? It’s not the United States or China. Available at https://www.piie.com/blogs

/trade-and-investment-policy-watch/whos-winning-us-china-trade-war-its-not-uni-

ted-states-or.

Rol , Martin (2019): Asian Brand Strategy – A New Paradigm. Available at https://iedc.

si/events/iedc-event/china-and-its-impact-on-the-world-economy-asian-brand-stra-

tegy-a-new-paradigm.

Rodrik, Dani (2011): The Globalization Paradox. New York: W. W. Norton & Company.

Rugge, Fabio (2020): Contested Domain. 5G in a Contested Domain. Available at https://

www.ispionline.it/en/pubblicazione/5g-contested-domain-27489.

Rosen, Daniel and Lauren, Glouderman (2021): Understanding US-China Decoupling:

Macro Trends and Industry Impacts. Available at https://rhg.com/wp-content/uplo-

ads/2017/01/RHG_WhatsItWorth_Jan2017-1.pdf.

Rozelle, Scott and Nathalie, Hell (2020): Invisible China. Chicago: University of Chicago

Press.

Saje, Mitja (2015): The Importance of Ferdinand Augustin Hallerstein for Cultural and

Political Relations with China and Korea. Asian Studies, 3(2): 13–32.

Santacreu, Ana Maria, and Makenzie, Peake (2019): A Closer Look at China’s Supposed

Misappropriation of U.S. Intellectual Property. Available at https://research.stlouis-

fed.org/publications/economic-synopses/2019/02/08/a-closer-look-at-chinas-suppo-

sed-misappropriation-of-u-s-intellectual-property

Seaman, John, Mikko, Huotari and Miguel, Otero-Iglesias ed. (2017): Chinese Investment in

Europe A Country-Level Approach. Available at https://www.ifri.org/en/publications/

publications-ifri/ouvrages-ifri/chinese-investment-europe-country-level-approach.

Servan-Schreiber, Jean-Jacques (1967): Le Défi américain. Paris: Éditions Denoel.

Servan-Schreiber, Jean-Jacques (1969): Ameriško izzivanje. Ljubljana: DZS.

184

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

Servan-Schreiber, Jean-Jacques (1980): Le defi Mondial. Paris: Fayard.

Shambaugh, David (2013): China goes global: The partial power. Oxford University Press.

Shambaugh, David (2015): China’s Soft-Power Push. Foreign Affairs, 94: 99.

Shambaugh, David (2016): Contemplating China’s future. The Washington Quarterly,

39(3): 121–130.

Segal, Adam (2020): The Coming Tech Cold War With China. Foreign policy. Available

at https://www.foreignaffairs.com/articles/north-america/2020-09-09/coming-tech

-cold-war-china

Shapiro, Jeremy (in Hobbs, 2020): Introduction: Europe’s digital sovereignty. Available

at https://ecfr.eu/wp-content/uploads/europe_digital_sovereignty_rulemaker_super-

power_age_us_china_rivalry.pdf

Ministry of Foreign Affairs. (2015): Slovenia: Safe, Successful, Global y Respected; The Fo-

reign Policy of the Republic of Slovenia. Available at http://www.mzz.gov.si/fileadmin/

pageuploads/Zakonodaja_in_dokumenti/doku-menti/strategija_ZP_ang.pdf

Smotrytska, Maria (2020): European logistics hubs of Belt and Road Initiative. Aftermath

of the BRI implementation in CEEC.). Available at https://www.ifimes.org/en/9937

State Council, (2015): Made in China 2025. Available at http://english.www.gov.cn/po-

licies/latest_releases/2015/05/19/content_281475110703534.htm.

Statista. Available at https://www.statista.com/statistics/1102457/research-and-

development-spending-share-gdp-g7-countries-china/#:-text=Domestic%20

spending%20on%20research%20and%20development%20%28R%26D%29%20

in,GDP%20in%202000%20to%202,8%20percent+%20in%202018

Strategija ekonomskih odnosov s tujino (1996): Odnos Slovenije do ostalih integracij:

strategija sodelovanja s posameznimi državami. Ljubljana: MEOR.

Služba Vlade Republike Slovenije za razvoj in evropsko kohezijsko politiko. (2017): Stra-

tegija razvoja Slovenije 2030. Available at https://www.gov.si/assets/vladne-sluzbe/

SVRK/Strategija-razvoja-Slovenije-2030/Strategija_razvoja_Slovenije_2030.pdf.

STO (2019): Turizem v številkah. Available at https://www.slovenia.info/sl/poslovne-

-strani/ raziskave-in-analize/turizem-v-stevilkah

Subramanian, Arvind (2011): Eclipse: Living in the Shadow of China’s Economic

Dominance. Available at https://www.piie.com/bookstore/eclipse-living-shadow

-chinas-economic-dominance.

Svetličič, Marjan (1993): Izhodišča razvojne strategije Slovenije. Teorija in praksa, 30(1/2):

26–37.

Svetličič, Marjan (2004): Pogovori o prihodnosti Slovenije. V svetu dejavna in prepo-

znavna Slovenija: prednostne naloge prihodnje slovenske zunanje politike. Ljubljana:

FDV.

Svetličič, Marjan in Pavle, Sicherl (2006): Kitajci prihajajo: grožnja ali priložnost?: Izzivi

tektonskih sprememb v svetu za razvoj Slovenije. Teorija in praksa 43 (5–6): 690–715.

Svetličič, Marjan (2015): Zamujene razvojne priložnosti Slovenije. Ljubljana: FDV.

Svetličič, Marjan (2020a): From Red Scare to Yellow pwril: Reality and Fears of the Rise of

China in a Historical Context. Teorija in praksa, l57(1): 347–367.

Svetličič, Marjan (2020b). The lessons of developed countries for Covid-19 exit strategies.

Teorija in praksa, 57(4): 1065–1084.

Svetličič, Marjan (2020c): Kdo plačuje zapitek Trumpove politike. Available at https://

www.umar.gov.si/fileadmin/user_upload/publikacije/ib/2020/IB2020_splet.pdf.

Bibliography

185

Svetličič, Marjan (2020d): Slovenia-China (economic) relations. In China and Central Eu-

rope: Success or Failure? Tamás Matura, ed. Budapest: Dialóg Campus.

Szczudlik, Justyna (2020): The EU’s New China Policy Works. Available at https://china-

observers.eu/the-eus-new-china-policy-works/.

Szunomar, Agnes, Liisi, Karindi and Andreea, Leonte (2020): Economic relations: A sugar

cane, or a sugar-coated stick? In: Karaskova Ivana, Alicja Bachulska, Agnes Szuno-

mar, Stefan Vladisavljev, Una Aleksandra, Bērziņa-Čerenkova, Konstantinas, Andri-

jauskas, Liisi, Karindi, Andreea, Leonte, Nina Pejić and Filip Šebok: Empty shell no

more:China’s growing footprint in Central and Eastern Europe Policy Paper.

Škrubej, Janez (2013): The Cold War for Information Technology: The Inside Story. Hou-

ston: Strategic Book Publishing and Rights Co.

Šimalčík, Matej (2018): Do the Central European Media show caution towards

China? East Asia Forum. Available at http://www.eastasiaforum.org/2018/02/14/

does-the-central-euro-pean-media-show-caution-towards-china/

Tai-Ting Liu, Tony (2019): Public Diplomacy: China’s newest Charm Offensive, in New

Perspectives on China’s Relations with the World; National, Transnational and Inter-

national. Available at http://www.e-ir.info/wp-content/uploads/2019/03/New-Per-

spectives-on-China%E2%80%99s-Relations-with-the-World-E-IR.pdf.

Taube, Markus (2020): The Roadblocks of China’s Innovation Drive. Available at https://

www.institutmontaigne.org/ressources/pdfs/publications/china-trends-7-EN.pdf

Taylor, Cloe (2019): A record number of robots were put to work across North America

in 2018. CNBC. Available at https://www.cnbc.com/2019/02/28/record-number-of-

-robots-were-put-to-work-in-north-america-in-2018.html

Taylor, Guy (2020): ‘Wake-up cal ’: Chinese control of U.S. pharmaceutical supplies sparks

growing concern. The Washington Times. Available at https://www.washingtonti-mes.

com/news/2020/mar/17/china-threatens-restrict-critical-drug-exports-us/

Tkalec, Staša & Svetličič, Marjan (2014): Can cooperation with the BRICs and other Growth

Markets help EU member states exit the crisis? Post-Communist Economies, 26(2):

176–200.

The Economist (2012, June 20): More 2,000 years in a single graphic. Available at https://

www.economist.com/graphic-detail/2012/06/20/more-2000-years-in-a-single-

-graphic?fsrc=nlw%7Cnewe&7C6-21-2012%7C2278741%7C36137496%7C

The Economist (2018, March 31): Chugging along, 74.

The Economist (2018, April, 7): Blow to blow, 59.

The Economist (2018, April, 7): Now boarding, 56.

The Economist (2018, May, 19): Special report, China in the World.

The Economist (2018, Oct. 6, 2018): China’s designs on Europe, 11.

The Economist (2018, Oct. 6, 2018): Gaining wisdom, marching forward, 17–19.

The Economist (2018, Oct. 23): The great chain of China, 55.

The Economist (2018, Nov.17): Looking to beat the world, 51–52.

The Economist (2019, Feb. 23): Can pandas fly, 11.

The Economist (February 9, 2019): Culture wars, 44.

The Economist (2019, Feb. 23): A new long march, 47–48.

The Economist, (2019, Feb. 23): China’s high-spending tourists bring political clout.

The Economist (2019, May 18): Special report China and America.

The Economist (2019, July 13): Special report; Global supply chains, 3–12.

186

CHINA IN THE WORLD ECONOMY AND ITS ECONOMIC RELATIONS WITH SLOVENIA: PAST, PRESENT AND THE FUTURE

The Economist (2019, July 13): Chaguan: A generational divide, 52.

The Economist 2020, June 27): The World’s factory, 59.

The Economist (2020, Nov.7): Circling back, 48.

The Economist (2020, Nov.7): How China sees America, 50.

The Economist (2020, Nov.7): Open sesame, 15.

The Economist (2020, Nov.7): CXircling back, 48–49.

The Economist (2020, Nov. 14): The intimidation game, 55.

The Economist (2020, Nov. 21): The China strategy America needs, 9.

The Economist (2020, Nov. 21): The new grand bargain, 17.

The Economist (2021, January, 23): Special report; Chinese youth.

The Economist (2021, January, 23): Trouble in the country, 66–67.

The Economist Intelligence Unit-EIU (2015): Long-term macroeconomic forecasts; Key

trends to 2050. A special report from The Economist Intelligence Unit. Available at

https://www.wtcphila.org/uploads/4/9/5/7/49572435/eiu_long-termforecasts_ke-

-ytrends2050.pdf

The Economist Intelligence Unit (2018): Creative disruption; Asia’s winners in the

US-China trade war. Available at https://www.eiu.com/public/topical_report.

aspx?campaignid=TradeWar.

The Economist Intelligence Unit (2019): Geopolitics after Covid-19: is the pandemic a

turning point? Available at http://country.eiu.com/article.aspx?articleid=1339299717

&Country=Albania&topic=Politics&subtopic=Forecast&subsubtopic=International+

relations.

Tianping, Kong (2017): The 16+1 Framework and Economic Relations between China and

the Central and Eastern European Countries. Available at http://ies.cass.cn/english/ pu-

blication/eer/201601/t20160114_2827211.shtml

Torreblanca, José Ignacio (2021): Referees don’t win games: Europe and the digital great game. Available at https://ecfr.eu/article/referees-dont-win-games-europe-and-

-the-digital-great-game/

Turcsányi, Richard Q. (2017): Central European attitudes towards Chinese energy in-

vestments: The cases of Poland, Slovakia, and the Czech Republic, Energy Policy 101:

711–722.

Turcsányi, Richard Q., Tamás, Matura and Rudolf, Fürst (2014): The Visegrad countries’

Political Relations with China: Goals, Results and Prospects. In Á. Szunomár, ed., Chi-

nese investments and Financial Engagement in Visegrad Countries: Myth or Reality?

Budapest: Institute of World Economics.

UNCTAD (2017): World Investment Report 2017. Available at https://unctad.org/

webflyer/world-investment-report-2017.

UNCTAD (2020): World Investment Report. Available at https://unctad.org/webflyer/

world-investment-report-2020.

Vampelj, Suhadolnik, Nataša (2015): Ferdinand Augustin Hallerstein on Giuseppe

Castiglionès Art. Asian Studies, 3(2): 33–56.

Van Bergeijk, Peter (2018): China’s Economic Hegemony (1-2050 AD), Working Paper

No. 637. The Hague: April Institute of Social Studies.

Vangeli, Anastas (2017): China’s Engagement with the Sixteen Countries of Central, East

and Southeast Europe under the Belt and Road Initiative. China&World Economy,

25(5): 101–124.

Bibliography

187

Velten, Jens (2020): FDI Screening Regulation and the Recent EU Guidance: What Opti-

ons do Member States Have? Columbia FDI Perspectives.

Vrabec, Suzana Zornada (2016): Luka Koper - Connecting markets; Regions Think Thank

Meeting, Port of Koper connecting markets of Central and Eastern Europe with Medi-

terranean Sea and Far East y Castle Jablje, Ljubljana, 15th March; Available at file:///C:/

Users/Marjan_Svetlicic/Downloads/eRegions-Think-Tank-15March2016-PortofKo-

per1.pdf

Wei, Shang-Jin, Zhuan Xie, and Xiaobo, Zhang. (2017): From »Made in China« to »Inno-

vated in China«: Necessity, Prospect, and Challenges. Journal of Economic Perspecti-

ves, 31(1): 49–70.

Wilson, Dominic and Roopa, Purushothaman (2003): Dreaming with BRICs: The path

to 2050. Goldman Sachs Global Economics, Paper No. 99. Available at https://www.

goldmansachs.com/insights/archive/archive-pdfs/brics-dream.pdf.

Woetzel, Jonathan, Jeongmin, Seong, Nick, Leung, Joe, Ngai, James, Manyika, Anu, Mad-

gavkar, Susan, Lund, and Andrey, Mironenko (2018): China and the world: Inside the

Changing Economic Relationships. Available at https:// www.mckinsey.com/featured-in-

sights/asia-pacific/china-and-the-world -inside-a-changing-economic-relationship.

Wong, Bernard and Tan, Chee-Beng (2017): China’s Rise and the Chinese Overseas. Lon-

don and New York: Routledge.

World Economic Forum, (2018): Google's true dominance over the Web. Available at https://

www.visualcapitalist.com/this-chart- reveals-googles-true-dominance-over-the-web.

WTO (2016): World trade statistics. Available at https://www.wto.org/english/res_e/

statis_e/wts2016_e/wts16_toc_e.htm

WTO (2018): Strong Trade Growth in 2018 Rests on Policy Choices. Available at https://

www.wto.org/english/news_e/pres18_e/pr820_e.htm.

WTO, (2019): Ch. V; Leading traders and the role of developing economies in world trade.

World Trade Statistical Review 2019. Available at https://www.wto.org/english/res_e/

static_e/wts2019Ch.05_e.pdf

Yasuhara, Yoko (1991): The Myth of Free Trade: The Origins of COCOM 1945–1950. The

Japanese Journal of American Studies: 4, 127–148.

Zheng, Yun (2020): China’s new Foreign Investment Law: deeper reform and more trust

are needed. Columbia FDI Perspectives. Available at http://ccsi.columbia.edu/fi-

les/2018/10/No-264-Zheng-FINAL.pdf

Zhu, Xiaodong (2012): Understanding China’s Growth: Past, Present, and Future. Jour-

nal of Economic Perspectives—Volume 26, Number 4—Fall 2012—Pages 103–124.

Understanding China’s Growth: Past, Present, and Future (aeaweb.org) Zhu, Viviana

(2020): China’s Dual Circulation Economy, Institute Mont

Zhu, Viviana (2020): China’s Dual Circulation Economy, Institute Montaigne.

China Trends. Available at https://www.institutmontaigne.org/en/publications/

china-trends-7-shrinking-margins-debate?&extc=eFAnh6Y#.





188

APPENDIX 1: VISITS BY SLOVENIAN HIGH REPRESENTATIVES TO

CHINA

1992 – Minister of Foreign Affairs Dr Dimitrij Rupel

1994 – Deputy Prime Minister and Foreign Minister Lojze Peterle

1995 – Prime Minister of the Republic of Slovenia Dr Janez Drnovšek

1996 – President of the Republic of Slovenia Milan Kučan

1999 – Minister of Foreign Affairs Dr Boris Frlec

2002 – Minister of Foreign Affairs Dr Dimitrij Rupel

2003 – Prime Minister of the Republic of Slovenia Anton Rop M.Sc. in Economics

2006 – President of the Republic of Slovenia Dr Janez Drnovšek (Boao Forum)

2007 – Prime Minister Janez Janša and Ministers Dr Dimitrij Rupel, mag. Andrej

Vizjak, Zofija Mazej Kukovič

2008 – President of the RS Dr Danilo Türk

2010 – Prime Minister Borut Pahor and ministers Dr Franci Križanič and Dr Ivan

Svetlik

2010 – Minister for Slovenians Abroad Prof. Dr. Boštjan Žekš

2010 – Minister of Transport Dr Patrick Vlacic

2011 – President of the National Assembly Dr Pavel Gantar

2011 – Minister of Defence Dr Ljubica Jelušič

2011 – Minister of Justice Aleš Zalar

2011 – President of the National Council mag. Blaž Kavčič

2014 – Minister of Economic Development and Technology Metod Dragonja

2015 – President of the National Council Mitja Bervar

2015 – Deputy Prime Minister and Minister of Agriculture, Forestry and Food

Dejan Židan

2015 – The Prime Minister of the Republic of Slovenia Dr Miro Cerar (top 16 + 1)

2016 – Minister of Economic Development and Technology Zdravko Počivalšek

2016 – Minister of Education, Science and Sport Dr Maja Makovec Brenčič

2016 – Deputy Prime Minister and Minister of Agriculture, Forestry and Food

mag. Dejan Židan

On the Chinese side:

1993 – visit by Deputy Prime Minister and Foreign Minister Qian

Qichen

2000 – visit by President of the Standing Committee of the National

People’s Congress Li Penga

2002 – visit by the President of CPPCC Li Ruihuan

2006 – visit by the state councillor (in government) Tang Jiaxuana

2008 – visit by Minister of Foreign Affairs, Yang Jiechi

2008 – visit by CPPCC President Jia Qinglin

2009 – visit by CPPCC Du Qinglin Vice-President

189

2009 – visit by Vice President of the Government of Hui Liangyu

2009 – unofficial visit by Deputy Prime Minister Zhang Dejiang

2011 – visit by member of the Politburo Committee of the Central

Committee of the Communist Party of China Li Changchun

2013 – visit by Minister of Defence Liang Guanglie

2013 – visit by Deputy Prime Minister Zhang Gaoli

2014 – visit by Vice Prime Minister Wang Yang



2017 – visit by special envoy of the President of the PRC, Meng Jianzhu





190

APPENDIX 2: MAJOR BILATERAL AGREEMENTS BETWEEN

SLOVENIA AND CHINA

1. Decree on ratification of a joint declaration on the establishment of diplo-

matic relations between the Republic of Slovenia and the People’s Republic of

China (Official Gazette RS-MP, No. 7-34 / 1992)

2. Decree ratifying the Agreement between the Government of the Republic

of Slovenia and the Government of the People’s Republic of China on the

Abolition of Visas for Diplomatic and Official Passports (Official Gazette RS-MP, No. 10-65 / 1994)

3. Law on Ratification of the Agreement between the Ministry of Defence of

the Republic of Slovenia and the Ministry of Defence of the People’s Republic

of China on Cooperation in the Field of Defence (BCNOP) (Official Gazette RS-MP, No. 12-62 / 2008)

4. Law on Ratification of the Agreement between the Government of the

Republic of Slovenia and the Government of the People’s Republic of China

on the Avoidance of Double Taxation and Prevention of Tax Evasion with

Respect to Taxes on Income (BCNIDO) (Official Gazette RS-MP, No. 13-69

/ 1995)

5. Act Ratifying the Agreement between the Government of the Republic of

Slovenia and the Government of the People’s Republic of China on Economic

Cooperation (BCNGS) (Official Gazette RS-MP, No. 5-31 / 2007) 6. Act Ratifying the Agreement between the Government of the Republic

of Slovenia and the Government of the People’s Republic of China on the

Promotion and Reciprocal Protection of Investments (BCNSZI) (Official Gazette RS-MP, No. 3-27 / 1994)

7. Regulation on the procedure for obtaining an import licence for imports of

certain products originating in the People’s Republic of China after the entry

into force of the Republic of Slovenia in the European Community (Official Gazette of the Republic of Slovenia, No. 121-5216 / 2003)

8. Decree on ratification of the Agreement between the Ministry of Culture

of the Republic of Slovenia and the General Administration of Press and

Publications of the People’s Republic of China (Official Gazette RS-MP, No.

12-73 / 2012)

9. Regulation on Ratification of the Agreement on Cooperation in the Field of

Health and Medicine between the Government of the Republic of Slovenia

and the Government of the People’s Republic of China (Official Gazette RS-MP, No. 2-2 / 2002)

10. Law on Ratification of the Agreement on Cooperation in Education, Culture

and Science between the Government of the Republic of Slovenia and the

Government of the People’s Republic of China (BCNIKZ) (Official Gazette RS-MP, No. 3-29 / 1994)

191

11. Act Ratifying the Agreement on Scientific and Technological Cooperation

between the Government of the Republic of Slovenia and the Government of

the People’s Republic of China (BCNZT) (Official Gazette RS-MP, No. 3-28 /

1994)

12. Act on succession of agreements of the former Yugoslavia with the People’s

Republic of China, which should remain in force between the Republic of

Slovenia and the People’s Republic of China (BCNNSNS) (Official Gazette RS-MP, No. 20-64 / 1997)

• Regulation on ratification of the Consular Convention between the

Socialist Federal Republic of Yugoslavia and the People’s Republic of

China (Official Gazette SFRY-MP, No. 2-3 / 1984)

• Agreement between the Government of the People’s Republic of China

and the Federal Executive Council of the Assembly of the Socialist Federal

Republic of Yugoslavia on Cooperation in Customs Matters (Official Gazette RS-MP, No. 20-64 / 1997)

• Decree on ratification of the Agreement on Plant Quarantine and Plant

Protection between the Government of the Socialist Federal Republic

of Yugoslavia and the Government of the People’s Republic of China

(Official Gazette SFRY-MP, No. 12-68 / 1981)

• Decree ratifying the Agreement between the Government of the Socialist

Federal Republic of Yugoslavia and the Government of the People’s

Republic of China on Cooperation in the Field of Veterinary Affairs

(Official Gazette SFRY-MP, No. 2-3 / 1981)

• Decree ratifying the Agreement on Cooperation in the Field of Health,

Medical Sciences and Pharmacy between the Federal Executive Council

of the Assembly of the Socialist Federal Republic of Yugoslavia and the

Government of the People’s Republic of China (Official Gazette SFRY-MP, No. 8-50 / 1986)

Available at http://www.iusinfo.si/Register/Kazalo.aspx?Src=WF2cfQSVrmEFiqP

7n4TjB0XCper cent 2fktawJtS51ui8tI1BbFEKCRper cent 2fVvper cent 2bwyTk-

Wper cent 2fA1Hper cent 2fuRpExeper cent 2bxsRCCSGegq9OK80Xdper cent

2fGfper cent 2bx0m6V85smBS7yb2C0teb56Xow1SIPwZper cent 2f9FpELO5ZA-

Vmkdk-4clHxJehLodEVR77GXajhBG8oJ1hvPq2F5QAper cent 3d





192

APPENDIX 3. AFRICA’S SIZE IS DIFFICULT TO COMPREHEND

WITHOUT COMPARISONS



Source: Leke, Acha, Mutsa, Chironga, and Georges, Desvaux (2018).





The book was published with the financial support of the companies Krka, d.d.,

Novo mesto and Riko d. o. o., Ljubljana.

Knjiga je izšla s finančno podporo podjetja KRKA, d.d., Novo mesto, in podjetja

Riko, d.o.o., Ljubljana.



21

Center of

ses

international

relations

naly

CIR A





Document Outline


gdprnlb

1. Introduction

2. China in the global economy 2.1. General economic developments

2.2. China is also enhancing its soft power

2.3 Future development challenges

2.4 China inward and outward foreign direct investment trends 2.4.1. China as global investor

2.4.2. Chinese inward FDI

2.4.3. Chinese outward FDI





2.5. Technological transformation of the Chinese economy

2.6. China in the global power structure

2.7. EU policy on China 2.7.1. Introduction

2.7.2. Evolution of the EU–China Strategy

2.7.3. Trade and Intellectual Property Rights

2.7.4. Foreign Direct Investment

2.7.5. Fifth-generation technology network standard

2.7.6. Concluding remarks





3. Slovenia-China bilateral relations 3. 1. Short history of bilateral cooperation

3.2. Slovenian attitudes to cooperation with China

3.3. Slovenia foreign policy relations with China

3.4. Institutional basis for mutual cooperation





4. Economic cooperation between Slovenia and China 4.1. The role of Port Koper

4.2. Other Slovenia’s comparative advantages and fears

4.3. Foreign trade

4.4. Trade with Hong Kong

4.5. The changing structure of Slovenia’s trade with China

4.6. Investment cooperation

4.7. Some problems and how to overcome them





5. Future potential for economic cooperation between Slovenia and China

6. The 17+1 Initiative 6.1. General framework

6.2. Economic cooperation trends

6.3. Slovenia in the 17+1 scheme





7. How to promote future bilateral cooperation?

8. Overcoming cross-cultural differences so as to enhance bilateral cooperation 8.1. The general importance of cultural differences for international negotiations

8.2. Dealing with the Chinese

8.3. How are these general principles echoed in real-life negotiations?

Bibliography

Appendix 1: Visits by Slovenian High Representatives to China:

Appendix 2: Major Bilateral Agreements between Slovenia and China

Appendix 3. Africa’s Size is Difficult to Comprehend without Comparisons